Rupee Weakness: CBSL Chief Defends Flexible Exchange Rate as Shock Absorber 📈

Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe defended the country's Flexible Inflation Targeting framework to Parliament, stating that a market-determined exchange rate is vital for economic stability. • Exchange Rate Movements: The Sri Lankan rupee depreciated by 8.0% against the US dollar between end-2025 and 9 June 2026, reaching Rs. 336.82 per dollar. • Pressure Factors: Recent currency weakness is attributed to high import expenditure (particularly on fuel and vehicles), lower tourism inflows, delayed export conversions, and foreign investment outflows from government securities and the Colombo Stock Exchange (CSE). • Regional Comparison: The 8.0% depreciation aligns with regional peer currencies experiencing pressures from global uncertainty and the Middle East conflict. Over the same period, the Indonesian rupiah fell 7.9%, the Indian rupee dropped 6.2%, and the Philippine peso weakened 4.6%. • Policy Stance: CBSL emphasized it does not target a predetermined rate. Instead, it uses interest rates to manage inflation. Currency flexibility acts as an automatic shock absorber, preserves finite foreign reserves, and maintains macroeconomic stabilization.