Sri Lanka’s rupee hits record lows as Central Bank hold rates

Sept 21, 2018 (LBO) – Sri Lanka’s rupee hit an all time low of 168.65/169.00 to the US dollar at the close of day Thursday down from 167.10 the day before as the Central Bank of Sri Lanka held rates.

Sri Lanka’s Minister of Finance Mangala Samaraweera releasing a statement said that Sri Lanka has been less affected than many other countries with economies of different sizes and stability.

“Upto May the Sri Lankan rupee has depreciated by approximately 6 percent while the Indian rupee has depreciated by 11 percent, Philippines 9 percent and Australia 8 percent,” he added.

“Meanwhile the Pakistan rupee, the Indonesian rupiah and the Russian ruble have also been depreciating and we are expecting further depreciations in the coming weeks.”

He said that there are countries worse than these, in Turkey the lira depreciation is 68 percent and in Argentina the depreciation is at 112 percent.

I think the wrong economic decisions of the past have led these two countries toward this devastation, he says.

On Wednesday, the Central Bank imposed a 100 percent cash margin on the requirement for a Letter of Credit on non-commercial motor vehicles with immediate effect.

“This was also done in an effort to help with the currency depreciation.”

In the recent past the US interest rates dropped to record lows where the investor capital left the US in search of higher returns in high-risk frontier markets but however, with the recovery of the US economy the Federal Reserve has been increasing US interest rates which has caused global investments to uplift capital from emerging markets like Sri Lanka and return to the US.

Analysts say this has caused capital movement out of many emerging economies, putting pressure on their balance of payment and causing currency depreciation.

Sri Lanka too has experienced foreign investments in government securities moving out and foreign capital leaving the equity market. Similar trends were seen in all emerging and frontier market economies.