May, 17, 2018
The underlying fundamentals do not warrant the current pressure on the Sri Lanka rupee. Gross external reserves are presently at a healthy USD 9.1 bn and the real effective exchange rate indices indicate that the currency is competitive.
The pressure on the currency is, therefore, unwarranted.
The following inflows are expected to boost the current robust level of reserves in the coming weeks.
- USD 250 mn as the next tranche of the IMF EFF in early June;
- USD 585 mn as the final payment on the long lease of the Hambantota port during the 2nd week of June 2018; and
- USD 1 bn as the proceeds of a syndicated term loan due in mid-June 2018.
Gross external reserves are, therefore, expected to amount to a record close to USD 11 bn by mid-June 2018.
While being committed to flexible exchange rate management, the CBSL has the option of using a part of its unprecedentedly large external reserves to trigger a material appreciation of the rupee to prevent unwarranted depreciation of the currency, particularly as it is not justified by the underlying fundamentals.