ECONOMYNEXT – Sri Lanka’s rupee opened at 308.20/40 to the US dollar in the spot market Wednesday, stronger from 308.25/75 the previous day, dealers said, while bond yields were broadly steady.
Sri Lanka rupee has depreciated steeply over 2025, despite record current account surpluses, which macro-economists usually blame for currency trouble.
Sri Lanka’s central bank has also injected liquidity via dollar buy-sell swaps over 2025, but not returned dollars to private parties after the liquidity turned into domestic credit and imports.
The rupee fell as budget deficits also contracted dramatically. Sri Lanka’s central bank had blamed budget deficits for external trouble from 1952 after suppressing rates with liquidity injections.
Analysts had blamed dollar purchases by the central bank and unsterilized excess liquidity and the refusal to return dollars to importers after private credit drove up imports under a so-called flexible exchange rate.
The ‘flexible exchange rate’ along with ‘flexible inflation targeting’ gives excessive discretion to central banks with an inflation bias.
The flexible exchange is based on a rejection of classical economic principles analysts have warned and can depreciate through excessive dollar purchases by the central bank even if control of the peg is retained through some deflationary policy.
RELATED : What is wrong with Sri Lanka’s flexible exchange rate
Under flexible or discretionary policy, the most dangerous time for monetary stability in the country had been an economic recovery and accelerating private credit.
Until the IMF’s Second Amendment central banks – including in Sri Lanka – were generally barred from depreciating.
Sri Lanka’s central bank has missed its 5 percent inflation target with largely deflationary policy (except for buy-sell dollars swaps) but it can push up prices of energy and food commodities by depreciating the currency and put pressure on companies, family finances and state enterprises.
Of the actively quoted bonds, a bond maturing on 15.09.2029 was quoted at 9.45/47 percent.
A bond maturing on 01.07.2030 was quoted flat at 9.57/60 percent.
A bond maturing on 15.12.2032 was quoted at 10.25/29 percent, up from 10.22/28 percent.
An auction of 86,000 million rupees Treasury bills was going on.
The telegraphic transfer rates for the American dollar was 304.5000 buying, 311.5000 selling; the British pound was 398.8116 buying, and 410.1734 selling, and the euro was 350.2443 buying, 361.6075 selling.
The Colombo Stock Exchange was trading in green; The ASPI was up 0.23 percent, or 53.16 points, at 23,104; the S&P SL20 was down 0.20 percent, or 12.78 points, at 6,389. (Colombo/Nov19/2025)
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