FINANCIAL CHRONICLE – Central Bank Governor Nandalal Weerasinghe emphasized that the recent decline of the Sri Lankan rupee is primarily influenced by external market dynamics, rather than shortcomings in domestic economic management. He acknowledged, however, that the central bank has been actively involved in mitigating extreme fluctuations in the currency’s value.
During a public lecture on the 2025 Annual Economic Review, Weerasinghe explained that under the current flexible inflation targeting system, the exchange rate is predominantly shaped by market demand and supply, in alignment with broader economic fundamentals. He noted that the rupee’s performance is now aligned with global trends, particularly as the US dollar gains strength amidst worldwide uncertainties.
Weerasinghe pointed out that neighboring economies, such as India, Thailand, and the Philippines, are facing similar challenges. He referenced recent reports indicating that the Indian rupee has reached its lowest historical value, despite the Reserve Bank of India holding approximately $700 billion in reserves.
He further elaborated that India also employs a flexible inflation targeting approach, which allows market forces to dictate currency values. The rising costs of imports, including petroleum, fertilizers, and other essential commodities, have heightened the demand for foreign currency in these regions.
Despite this market-oriented approach, Weerasinghe confirmed that the central bank does intervene to curtail excessive volatility. “Our interventions are a critical aspect of the reserve management strategy, which has seen our reserves grow from nearly zero in 2020 to around $7 billion today,” he noted, emphasizing that these reserves are intended, in part, to help stabilize the currency.
It’s important to highlight that the Sri Lankan rupee had already depreciated from 309.50/60 on December 30, 2025, well before the onset of the Middle East conflict, although some analysts may use this situation as a rationale to deflect accountability for broader economic issues.
As of Wednesday, the rupee closed at a weaker position of 326.00/327.00 against the US dollar for one-week transactions, with no spot trading recorded. (Colombo/May14/2026)
