Economic Reforms Needed to Ease Pressure on Sri Lankan Rupee - Economist

Economist Dhananath Fernando has said that implementing key economic reforms is essential to ease pressure on the Sri Lankan Rupee and strengthen overall macroeconomic stability.

Fernando stressed that aligning local fuel prices with global market rates is a crucial step, arguing that such a move would help reduce fiscal strain and support more efficient market functioning.

He noted that maintaining fuel prices below international levels can distort market dynamics, increase pressure on government finances, and further strain foreign exchange reserves.

While acknowledging that fuel price increases are often unpopular, Fernando said they are necessary given the current pressure on the rupee and broader economic conditions.

He further explained that fluctuations in the US dollar exchange rate influence market behaviour, noting that when the rupee weakens even slightly, exporters tend to delay converting foreign currency earnings, while importers accelerate dollar purchases—thereby increasing demand for foreign exchange.

Referring to recent currency movements, he said the rupee depreciated sharply on May 21 and 22 before later recovering. He also pointed out that the Central Bank of Sri Lanka (CBSL) intervened in the foreign exchange market in May by selling nearly US$ 220 million.

According to Fernando, such intervention reduces liquidity in the system, which may have contributed to the rupee’s subsequent appreciation.

He added that consistent and disciplined economic reforms are necessary to stabilize currency fluctuations and build long-term resilience in the economy.