(May 25): The Sri Lankan rupee is set to recover from its slide by the end of this year as oil prices are set to decline and as the central bank raises interest rates, according to BMI.
A renewed balance-of-payment crisis is unlikely, which limits the risk of a sharp depreciation in the currency, said Carolyn Pang, Singapore-based country risk analyst at BMI, a Fitch Solutions unit. The currency will rebound to 320 per dollar by year-end, an over 3% gain from Monday’s level, as the Iran war is likely to end by June, she said.
The rupee’s 7% slide is the worst in Asia this year, as the nation imports all its oil requirements. The decline has been heightened by speculation of further weakening, as importers buy more dollars and exporters delay conversion of foreign currency holdings, according to the government.
The central bank will likely raise rates by 25 basis points on Tuesday to help support the rupee and contain inflation, Pang said. Most economists in a Bloomberg survey expect a hike of at least 50 basis points.
The country’s BoP position is stronger than in 2022 when it defaulted, with foreign-exchange reserves set to cover around 3.4 months of imports at the end of 2026, above the International Monetary Fund’s minimum recommendation, Pang said.
See also: India rupee climbs on oil relief, central bank valuation comment
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