📈 Rupee Depreciation Blamed on Subsidised Fuel, Not Vehicle Imports

A recent 50% duty surcharge on vehicle imports aimed at easing pressure on the Sri Lankan Rupee (LKR) has sparked debate, with data suggesting rising fuel costs are the primary driver of currency weakness. • Policy & Market Panic: A 50% surcharge on customs import duties for vehicles was enacted on May 16. Anticipation of the leak led to a massive surge in Letters of Credit (LCs) to US$ 23 Mn on May 15, up from US$ 2.6 Mn a week prior, causing market panic and further hurting the Rupee. • Vehicle Import Trends: The Central Bank notes US$ 600 Mn was spent on vehicles in Q1 2026, warning of a potential US$ 2.4 Bn annual bill. However, JB Securities data shows a clear MoM decline from December 2025 peaks: - Personal vehicles: Down from US$ 240.9 Mn (Dec) to US$ 148.4 Mn (Feb). - Commercial vehicles: Down from US$ 60.2 Mn (Dec) to US$ 45.2 Mn (Feb). • The Real Pressure Point: Independent analysts point to unadjusted, heavily subsidised domestic fuel prices amidst rising global oil costs from Middle East tensions. - Fuel imports surged 74.7% YoY to US$ 630 Mn in March 2026 alone. - The government currently subsidises diesel by Rs. 100/litre and petrol by Rs. 20/litre. Analysts argue implementing cost-reflective pricing for fuel and electricity is more critical to curbing import demand and stabilizing the currency than restricting the automotive sector.