USD/LKR down to 160 as Sri Lanka’s Central Bank defends the currency

June 12, 2018 (LBO) – Sri Lankan Rupee weakness has caused the currency to trade close to the psychological Rs160/US$ level. In the month of May, the Central Bank of Sri Lanka depleted approximately US$220mn in foreign reserves defending the currency.

Persons aligned with the previous government such as former SEC Chairman Nalaka Godahewa, who has been indicted and charged under the public property act, have used the Rupee weakness to criticise the current government’s management of the economy. Former Finance Minister Ravi Karunanayake has also been critical of the devaluation and the Central Bank’s role in management of the currency.

In a recent tweet, Oxford educated Economic Advisor to the Finance Ministry Deshal de Mel counters the above argument citing pressures on the currency caused by international forces, the foremost being the US Federal Reserve rate hike cycle. Displaying a graphic, De Mel points out that the currency is actually outperforming regional peers India and Pakistan.

Analysts and economists have been quick to praise management of monetary policy by the popular Central Bank Governor, making the former Finance Minister’s criticisms also ring hollow among financial market participants.

The US Federal Reserve is having a 2 day meeting with another rate hike expected on Wednesday.