Sri Lanka Rupee (LKR) ranks top performer among emerging market currencies in the first quarter (1Q) of 2024 with over 7 % spot returns, Bloomberg market data showed.
Accordingly, the Sri Lankan Rupee has recorded a spot return of 7.77% by the end of March claiming the top performer among the emerging market currencies.
Other currencies which have positive returns in the first quarter are the Mexican Peso with a 2.5% spot return and the Pakistani rupee with a 1.35% spot return.
Since the second half of 2023, the rupee has been ticking up as it appreciated by 12.1% against the US dollar in 2023.
According to Frontier Research, reserve accumulations which were driven by surpluses on the current account and financial accounts led to the rupee’s appreciation in 2023.
The current account surplus is likely to be around $1.3-1.5 billion for 2023, higher than the $1.2 billion surplus anticipated in the International Monetary Fund’s (IMF) first review. This overperformance was driven by remittances being close to $ 6 billion, goods exports being more resilient at just under $ 1 billion per month on average and goods imports not recovering towards late-2023.
“With both CBSL and banks likely comfortable in the FX reserves position, alongside seasonal favorability for tourism and remittance income, the LKR has been able to appreciate further in early 2024,” it said.
Also, the importers being cautious on account of uncertainty about consumer demand in the aftermath of the Value Added Tax (VAT) increase could be helping to keep demand for foreign exchange contained.
Last month, President Ranil Wickremesinghe said that he expects the dollar to be at Rs. 280 by June to which CBSL Governor, Dr. Nandalal Weerasinghe refuted, responding when asked at last week’s monetary policy review. He instead said that CBSL does not have LKR projections for the year and their main objective is to target inflation.
Frontier Research expects the Dollar (USD) to be in the Rs. 315-345 range by end-June while expecting depreciation in the third and fourth quarters.
They expect the import demand to gradually grow from the $ 1.4 billion month average in 2023 to around $ 1.5 billion month average in 2024, supported by an increase in private sector credit growth to at least 5-10% y-o-y in 2024 and a pickup in government expenditure – including on capex – on the back of a higher-than-expected improvement in revenues.
Source: the morning
