Economic analyst Dhananath Fernando says that implementing economic reforms is essential to reduce the pressure on the Sri Lankan rupee.
He pointed out that if fuel prices are not adjusted in line with market conditions, the pressure on the rupee could intensify further.
Referring to the latest data released regarding the rapid depreciation of the rupee on May 21 and 22, followed by its subsequent appreciation, Fernando stated that the Central Bank of Sri Lanka had injected nearly US$220 million into the market during the month of May.
According to him, the return of a certain amount of rupees from the market to the Central Bank had an impact on the rupee’s appreciation and contributed to its current overvaluation.
He stressed the importance of adjusting fuel prices in accordance with market trends, particularly as global fuel prices continue to rise.
Mr. Fernando further stated that if the US$2.5 million seized by a third party cannot be recovered, the financial burden may ultimately have to be borne by the public through taxes.
Speaking further on the matter, he said:
“If the pressure on the rupee is to be reduced, economic reforms in Sri Lanka are inevitable. The latest data regarding the rapid depreciation and subsequent appreciation of the rupee on May 21 and 22 has now been released. According to that data, the Central Bank of Sri Lanka sold approximately US$220 million to the market in May. In other words, rupees circulating in the market were exchanged for dollars, and the Central Bank later repurchased them. This also had an impact, and as a result, the rupee has once again become overvalued.
“If we fail to adjust fuel prices in line with market conditions while global oil prices continue to rise, the demand for dollars in the local market will increase significantly, placing further pressure on the exchange rate.”
