The Sri Lankan Rupee has depreciated 3.6% against the US Dollar so far in this year, falling to its weakest level against the currency since 16 January 2024. 

The CBSL’s daily exchange rate bulletin showed the dollar buying rate at Rs. 318.03 and the selling rate at Rs. 325.64 as of 8 May, while the indicative USD/LKR spot exchange rate was recorded at Rs. 321.87 on 11 May.

Although the depreciation remains far below the scale seen during the 2022 currency crisis, the latest pressure is significant because it follows a period of relative external sector stability.

Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe has identified three main factors behind the movement: a changed external inflow pattern, regional capital outflows, and the Central Bank’s continued net dollar purchases.

Sri Lanka’s external account is more diversified than it was a decade ago, with remittances no longer concentrated mainly in the Middle East. This has changed the predictability of currency movements against older seasonal patterns.

Regional conditions have also contributed to the pressure. Since March, capital has been moving out of Asian emerging markets, while foreign holdings of Sri Lankan Government securities have declined in March and April.

The third factor is the most closely watched. The CBSL has historically sold dollars during periods of rupee weakness to stabilise the exchange rate. This year, however, it has remained a consistent net buyer of dollars.

According to CBSL data, the Central Bank purchased $ 209.8 million and sold $ 9.5 million in January. In February, it purchased $ 461 million and recorded no sales. In March, it purchased $ 120.3 million and sold $ 71.5 million.

For exporters and remittance recipients, the weaker exchange rate may improve rupee earnings. For businesses dependent on imported inputs, it could add cost pressure if the depreciation continues.