Rupee may fall further without import price fix

Current depreciation around 1%
Current level is natural, expected: Economist
Int’l price reflection in domestic economy essential

Economists warn that Sri Lanka could face further rupee depreciation unless the prices of key imports are adjusted to reflect actual international market prices.

Speaking to The Sunday Morning Business, JB Securities Ltd. Chief Executive Officer (CEO) and Advocata Institute Chairman Murtaza Jafferjee, commenting on the approximately Rs. 3–4 depreciation of the Sri Lankan Rupee against the US Dollar since the outbreak of the Middle Eastern conflict, noted that the current depreciation was only around 1%, adding that such a level was natural and to be expected given the external economic conditions.

“That level of depreciation is nothing to be alarmed about. The fact that the Central Bank of Sri Lanka (CBSL) is allowing the exchange rate to be market-determined is a positive development,” he stated.

He further said that if Sri Lanka intended to curb further depreciation of the rupee, it was essential that international prices were reflected in the domestic economy.

Accordingly, he pointed out that fuel prices, including diesel and petrol, were still not fully aligned with international market prices. Similarly, he noted that electricity tariffs had not been adequately adjusted to reflect current cost realities.

“Unless we quickly revise prices to reflect international levels, we are likely to see continued depreciation, as demand is not adjusting accordingly,” he said.

Jafferjee explained that higher prices would naturally reduce demand. However, according to him, this adjustment in demand is not happening quickly enough in Sri Lanka’s case.

He further stated that the current pricing of major imports reflected an under-recovery of true costs, resulting in a market imbalance. As a consequence, demand for foreign exchange remains elevated and will continue to do so unless domestic prices are brought in line with international prices.

According to the average buying and selling Telegraphic Transfer (TT) exchange rates published by the CBSL, based on quotes provided by selected licensed banks, the selling rate of a US Dollar stood at Rs. 313.09 and the buying rate at Rs. 305.58 on 27 February.

By Thursday (26), the selling rate of a US Dollar had increased to Rs. 317.81, while the buying rate had risen to Rs. 310.32.

Source: The morning