Sri Lanka’s Central Bank has mandated that exporters convert their foreign currency earnings into Sri Lankan rupees within a month, a change from the previous three-month timeline. This decision comes as a response to the mounting pressure on the rupee’s value. Market participants noted that the Central Bank’s intention is to mitigate the downward trend of the currency.
According to two currency dealers, the Central Bank had previously indicated that if exporters postponed their currency conversions in hopes of a further decline in the rupee, they would shorten the conversion period. Central Bank Governor Nandalal Weerasinghe issued an extraordinary gazette stating that all exporters receiving proceeds from exports must convert any remaining amounts into rupees by the tenth day of the following month, but only for specified authorized payments.
This new regulation is effective immediately. Currency dealers indicated that this measure could provide temporary support to the rupee. “This will offer a slight boost to the rupee in the short term. However, there remains a strong demand for dollars in the market, which means that the funds from export conversions may not last long,” commented a Colombo-based dealer who preferred to remain anonymous.
This latest directive follows the Central Bank’s intervention in May, during which it utilized $211 million to stabilize the currency, which reached a four-year low on May 21. The rupee has been experiencing downward pressure due to heightened demand for dollars from importers, driven by increased costs related to fuel and vehicle imports.
Additionally, the Central Bank has adjusted its monetary policy, raising the overnight policy rate by 100 basis points on May 26 to combat inflation driven by demand. The rupee has depreciated by approximately 8 percent this year, with importers securing forward contracts amid concerns of further declines, while exporters have been hesitant to convert their dollar earnings until the currency stabilizes.
Some analysts attribute the rise in imports, which has contributed to the rupee’s decline against the U.S. dollar, to the excess liquidity in rupees resulting from the Central Bank’s aggressive dollar purchases aimed at enhancing reserves while maintaining lower interest rates.
