At a panel discussion organized by the Central Bank of Sri Lanka on sustaining stability, Bingumal Thewarathanthri, Chief Executive Officer of Standard Chartered Bank Sri Lanka, shared insights on the future trajectory of the rupee.
Thewarathanthri expressed optimism about the rupee’s short-term strength, particularly in light of Sri Lanka’s debt restructuring efforts.
“We expect a stronger rupee in the short run, especially debt restructuring, there will be a positive impact coming in. The Rupee will not slide in a big way, we expect after that it will hit the bottom and then depreciate by 5 to 7 per cent. Historically it has performed that way. That’s our view,” he explained.
“From a nominal perspective, the rupee has depreciated by 50% even at current levels from when we capped it at 200,” he added.
Prof. Sirimal Abeyratne, Professor of Economics at the University of Colombo also commented on the challenges of managing the exchange rate in Sri Lanka.
“Exchange rate has to ideally be flexible and stable, but in the Sri Lankan context, the two seem to be contradictory,” he said.
“The theoretical problem is, out of these three— inflation rate, interest rate, and exchange rate—it is debatable whether the central bank can control all three. The Central Bank has to choose only two to manage effectively,” Prof. Abeyratne said.
Prof. Abeyratne also highlighted the broader economic issues affecting the country.
“The Central Bank can manage the exchange rate if the rest of the country earns foreign exchange. Over the last 45 years, it is quite strange that we have only generated 13 billion dollars in exports, with which it is difficult to manage exchange rates. Whereas, other countries have increased exports to over 100 to 200 or even 300 billion dollars. We have failed,” he said.
Sri Lanka will continue to face challenges in managing exchange rates until it resolves this issue, which stems not from the Central Bank but from the country’s challenges with structural reforms, he said. (Newswire)