SL Rupee becomes Asia’s best performing currency

• Ends nine-day depreciation streak
• Biggest gain since March 2023

The Sri Lankan Rupee (LKR) has surged against the US Dollar (USD), snapping a nine-day losing streak to become Asia’s best-performing currency on Friday, Bloomberg reported yesterday.

The LKR strengthened as much as 2.7 percent, its biggest gain since March 2023, reversing losses from Thursday when it slid to a three-year of 342 against the USD.

Friday’s strengthening of the LKR may have been due to some market players deciding to sell dollars before upcoming inflows from the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB), Deputy Minister of Finance and Planning Dr. Anil Jayantha Fernando told reporters in Colombo. The IMF will decide on the seventh tranche of its Extended Fund Facility (EFF) program possibly on May 27.

The Deputy Minister said the Government would not shrink the economy or impose restrictions on imports under the prevailing circumstances. He told a media briefing in Colombo that the weakening of the LKR against the USD was mainly due to the sharp increase in global prices of fuel, gas and fertiliser triggered by international crises. He said that rising shipping and insurance costs had added pressure to the situation.

Speaking at an event in Batticaloa, President Anura Kumara Dissanayake also allayed fears that the economy would crash to the levels witnessed in 2022. The Government was discussing measures to improve the economy with the IMF and other multilateral organisations, while also taking steps domestically to boost the economy. He said it was vital to curb fuel consumption to control the short-term pressure on the currency, with monthly imports now costing around US$ 500 million as against just US$ 98 million in February, before the Iran War started on February 28. This has been compounded by a reduction in the number of tourist arrivals and expatriate remittances from Middle East countries impacted by the Iran War, the President said. Many countries had also curtailed imports, affecting Sri Lanka’s exports in several sectors, he said.

The Central Bank of Sri Lanka (CBSL) has taken various steps to maintain financial stability. The CBSL is due to deliver its rate decision on May 26, with most economists in a recent Bloomberg survey expecting a hike. Monetary tightening and the anticipated IMF/ADB inflows could help the LKR stabilise and appreciate, according to financial analysts.

Most Asian currencies have experienced a free fall due to the effects of the Iran War. Asian economies are bracing for further volatility as the United States has indicated that hostilities with Iran could resume if the indirect talks carried out via Pakistan do not lead to substantial progress.

The Indian Rupee (INR) has slid to around 97 to the USD, with the Japanese Yen (JPY) getting close to 160 versus the USD. The Thai Baht (THB) is on the 100 threshold against the USD. Economists are hopeful of a better economic outcome for Asia if the two warring parties reach a deal soon.

Source - Sunday Observer