Business

Fitch expects rupee depreciation to continue

 

  • Attributes drop to SL’s external financing situation
  • Expects CBSL’s targeted inflows to ease pressure on LKR

 

Fitch Solutions Country Risk and Industry Research forecasted that the risk on currency outlook is weighed on the upside, because currency is to remain on a depreciatory trend due to Sri Lanka’s external financing situation and tighter US monetary policy, alongside worsening terms of trade with the impact of the prevailing situation.  

The Fitch Solutions report further pointed out that in accordance with the Six-Month Road Map, the authorities are targeting an inflow of $ 4.5 billion in the last quarter (Q4) of 2021, and $ 5.7 billion in the first quarter (Q1) of the coming year (2022). Accordingly, the sources include bilateral financing and currency swaps worth $ 1.5 billion each.  

Fitch Research expects investor confidence regarding Sri Lanka’s near-term external debt repayment to be boosted, given that this amount is greater than the country’s foreign debt obligation till the end of 2022. This would possibly ease downward pressure on the Sri Lankan rupee (LKR) and allow the Central Bank of Sri Lanka (CBSL) to better defend the currency.

Moreover, the report said that an improving tourism outlook on the back of a relatively high vaccination rate in the country (59.5% of the population is fully vaccinated) alongside a decrease in cases (the seven-day moving average number of cases as of 17 October was at 752,  significantly lower than the peak of 5,961 on 30 August), will also bolster the country’s foreign exchange inflow, achieving a similar effect.