Central Bank Governor Nandalal Weerasinghe said that it is important to distinguish currency performance from overall economic growth, addressing recent reports on the depreciation of the Sri Lankan rupee.
Weerasinghe was responding to a journalist’s question regarding the rupee’s 1.8% depreciation this year, during the media briefing to announce the Central Bank’s Monetary Policy Review. “Exchange rate will be determined in the market based on demand and supply. The exchange rate came down from 230 to 290 to 300 levels. That’s one factor. The second factor is that when the import demand is coming up, there are corresponding inflows also coming up. It can move either way, based on the demand and supply,” Weerasinghe said.
The Central Bank Governor also addressed concerns about how the Sri Lankan rupee’s performance has been reported in the media recently. “I have seen some have interpreted this out of context. I saw in the media that this is the worst-performing currency during these 28 years or something. Factually, it is correct—this month our currency appreciated by close to 2%,” he said.
However, Weerasinghe stressed that currency movements should not be directly equated with economic performance. “For example, if you look at the Indian currency and Chinese currency over the last two years, both currencies are at the lowest points in history compared to the US dollar. But India has $640 billion in reserves, while China has $3.2 trillion in foreign exchange reserves. That is where we need to be careful in interpreting movement of currency versus performance of the economy,” he explained.
Weerasinghe cautioned against drawing conclusions from short-term fluctuations. “There are a lot of other factors, and also looking at one week’s currency movement is not the best way to interpret it,” he said.
Bloomberg recently reported that the Sri Lankan rupee was the worst-performing emerging market currency by the fourth week of January, after ranking as the best performer in 2024.
According to Bloomberg market data, the rupee recorded a negative spot return of 1.72% as of January 24, 2025. (Newswire)