ECONOMYNEXT – Sri Lanka’s rupee was quoted around 304.05/15 to the US dollar Wednesday, after opening weaker, while bond market sentiment was bullish, dealers said after fiscal over-performance.
Longer tenor yields in particular fell continuing a trend seen from a day earlier, they said.
Sri Lanka rupee had depreciated steadily over 2025 amid record current account surpluses.
The rupee had been pushed lower though authorities buying dollars from private citizens, building up excess liquidity and not returning them (intervening) when the created rupee turned into imports through consumption or credit.
However, some of the excess liquidity had reduced due to interventions for government debt repayments.
The central bank is no longer doing inflationary open market operations (reverse repo injections) which reduces the risk of currency crisis and second default sharply.
But through the expedient of buying dollars, not mopping them up to stop creating credit and not returning them after credit was created (intervening for private transactions0, the currency can be easily depreciated, analysts say.
Pressure can also be put on the currency by purchasing dollars from IMF or ADB loans, instead of keeping them in a Treasury reserve, and creating new money.
As a result, a negative confidence shock is created with expectations build up among market participants that the currency will go to 305 to the US dollar as had happened several times in the past.
Though exporters have reduced selling, including in the forward markets, there is no panic covering of import bills as in several past occasions, dealers said.
There is an imbalance in liquidity in banks that give credit being short and state banks and foreign banks having excess liquidity.
Overtrading banks which are short of cash now must borrow at the ceiling rate of 8.25 percent, with easy money from reverse repo injections no longer being available.
Sri Lanka’s central bank has depreciated the currency from 477 to 305 to the US dollar since its creation, usually blaming budgets after printing money through various mechanisms to suppress rates analysts have pointed out.
In addition to depreciation, import and exchange controls were imposed on the public to cover up flaws in the operating framework.
Meanwhile in September the Finance Ministry, ran a surplus in the current account of 6 billion rupees up to September, a rare occurrence. A primary surplus of the budget was over 1.4 trillion rupees was also recorded, far higher than the 300 billion rupee floor in the IMF program.
The budget deficit has also fallen sharply.
Yields on longer tenors in particular fell Wednesday, dealers said.
A bond maturing on 15.12.2026 was quoted at 8.20/25 from yesterday’s 8.25/30 percent.
A bond maturing on 15.03.2028 was quoted at 9.12/15 from 9.12/15 percent.
A bond maturing on 01.07.2028 quoted at 9.20/25 down from 9.18/25 percent.
A bond maturing on 15.09.2029 was quoted at 9 9.63/68 percent, down from 9.65/70 percent.
A bond maturing on 15.10.2029 was quoted at 9.66/68 down from 9.65/68 percent.
A bond maturing on 01.07.2030 was quoted at 9.76/78 closed at 9.75/78 percent.
A bond maturing on 01.11.2033 10.60/63 closed at 10.65/70 percent.
A bond maturing on 15.12.2032 is quoted 10.45/48 10.50/55 percent. (Colombo/Oct28/2025)