- USD selling rate at Rs. 342.70
- YTD depreciation of 9.34% from Rs. 313.43 at start of 2026
- More pronounced amid escalating Middle East crisis
The Sri Lankan Rupee has come under renewed depreciation pressure in recent weeks, with the selling rate of the US Dollar climbing to Rs. 342.70, reflecting a Year-to-Date (YTD) depreciation of 9.34% against the Rs. 313.43 recorded at the start of the year, raising fresh concerns among businesses and policymakers about the trajectory of the local currency.
The depreciation has been particularly pronounced in the wake of the escalating Middle East crisis, accelerating sharply from a selling rate of Rs. 313.38 recorded as recently as 3 March, according to average Telegraphic Transfer (TT) exchange rates published by the Central Bank of Sri Lanka (CBSL), based on quotes provided at 9.30 a.m. by selected licensed banks.
However, experts are urging caution against reading too much into near-term movements, pointing instead to a more nuanced structural story underpinning the rupee’s behaviour.
Speaking to The Sunday Morning Business, Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe identified two primary drivers behind the current bout of depreciation – deferred foreign exchange payments for fuel purchases made approximately a month ago and a surge in import demand from businesses anticipating further currency weakness.
“Any currency move needs to have foreign exchange flows behind it. Foreign exchange inflows should be broadly continuing at the same rate and remittances in particular should be strong. As a result, the primary driver of depreciation should be an increase in foreign exchange outflow,” Damsinghe observed.
He cautioned, however, that the continuity of the current depreciation pressure hinged on whether these outflows were sustained or merely temporary. “If these particular outflows are temporary – import demand in particular could be bunching up – then this particular depreciation driver can move away.”
He also noted that the expected receipt of the International Monetary Fund (IMF) tranches by the end of the month, coupled with reduced debt repayments later in the year, should provide additional relief on the financial flows front.
Beyond the immediate pressures, Damsinghe pointed to a more consequential structural shift in how Sri Lanka’s exchange rate should be understood.
He argued that the country had entered a new currency regime, one characterised by surpluses in the current account, in stark contrast to the chronic deficits that historically rendered the rupee vulnerable to prolonged and unidirectional depreciation.
“Any pressure on the currency has to worsen this in order to sustain depreciation. As depreciation raises prices and compresses demand, it is more likely that the underlying current account structure actually strengthens instead, after the immediate import pressures subside,” he explained.
Damsinghe further highlighted the increasingly bidirectional nature of the rupee since 2023 – a marked departure from the one-way depreciating trend that defined Sri Lanka’s currency for much of its recent history. He noted that since the CBSL ceased defending a fixed exchange rate level, the rupee had moved meaningfully in both directions.
The currency appreciated from around Rs. 320 in April 2023 to Rs. 290 in June of that year, before depreciating to Rs. 325 in July and then recovering to Rs. 295 by April 2024. Subsequently, it depreciated to Rs. 300 in September 2024 before appreciating to below Rs. 290 by year-end.
“Periods of depreciation and appreciation both remain possible in Sri Lanka now, as opposed to only a unidirectional depreciation as in the past.”
Damsinghe emphasised that while the current currency depreciation may persist in the near term, a reversal remained well within the realm of possibility once the immediate external pressures eased.