ECONOMYNEXT – The recent depreciation in Sri Lanka rupee currency is mainly due to high speculation and fears driven by false information, Deputy Finance Minister Anil Jayantha Fernando said.
The rupee has been under downward pressure despite the Central Bank’s monetary policy tightening and forced conversion rule amid strong demand for imports.
It has experienced severe, compounding volatility throughout 2026 so far, challenging the island nation’s fragile post-default economic recovery.
“The main reason for this volatility is due to unexpected demand for dollars influenced by high speculation,” Fernando told reporters on Wednesday at a media briefing.
“There is a component which has been driven by misled and wrong information as well; to a great extent this speculation created fear in the foreign exchange market.”
“So we need foreign exchange for importation purposes. Those who import for businesses offer for daily requirement, whatever it is, they had a fear without doing a proper calculation on how the foreign exchange would be stable in the market. Because of the speculation, they wanted to import more.”
“That is the reason why in May and April, the import bill exceeded $2 billion every month,” Minister Fernando explained.
The rupee has fallen 7 percent so far this year including around 4 percent in May alone. It hit a four-year low of 354 rupees on May 21, the Central Bank data showed.
The fall in the rupee has also led exporters to adopt a wait-and-see approach in converting dollars, which further reduced dollar liquidity in the market.
Sri Lanka’s Central Bank on June 10 ordered exporters to convert their dollars within one month, down from three months amid increasing depreciation pressure on the currency. Though the rupee appreciated after this move, it is still under downward pressure due to heavy importer demand, currency dealers say.
The government has already discouraged vehicle importation and introduced fuel rationing to preserve dollars.
Fernando said those who acted based on wrong information will have to pay a price and he added that the current volatility is temporary though higher demand for fuel is a reality.
“We can’t stop buying oil. That is the reason why CPC’s (Ceylon Petroleum Corporation) fuel bill in May went up to 526 million, compared to its average of 170 million per month,” he said.
“If you have 10 million in foreign exchange in your hand as of now, what are you going to do? A reasonable, logical person might think that this will go up. Therefore, they will not come to supply.”
He said the rupee fall is mainly due to the interest rate difference between rupee loans and dollar borrowing and the currency is likely to fall similar to last year’s 5.6 percent.
“It is not a big problem. Those who knowingly engage in the market know how the exchange is behaving. But due to this unexpected situation, it went up.”
“So we are very confident that we could control it. The Central Bank is really using its tools appropriately, not all tools at once, but step by step. Therefore, that is the reason why it ….has come down to the normal level.”
After entering the year on a relatively stable path, the currency faced intense downward pressure by mid-year, with the US dollar selling rate rapidly sliding past 342 LKR and briefly breaching 350 LKR in the open market, marking a depreciation of more than 8% year-on-year on May 21.
This volatility was primarily ignited by an unyielding merchandise trade deficit, driven by an elevated import bill for refined petroleum amid Middle East geopolitical shocks and an aggressive, pent-up surge in consumer demand for newly relaxed vehicle imports.
Compounding these external pressures, critics pointed to domestic liquidity injections and market speculation, which triggered a confidence crisis as exporters hoarded foreign currency in anticipation of a steeper decline.
To arrest the currency’s slide and combat the immediate pass-through of imported inflation, the Central Bank abandoned its purely hands-off, flexible exchange rate posture.
In a series of aggressive stabilization maneuvers, the Central Bank burned through a net $211.3 million in foreign reserves in May alone, implemented an unexpected 100 basis point hike to the Overnight Policy Rate to lift it to 8.75%, and enforced a strict emergency mandate shortening the exporter dollar-conversion window to 30 days.
While these heavy administrative and monetary interventions successfully checked panic buying and guided the rupee back toward a steadier 333 LKR baseline by mid-June, the intense turbulence exposed the persistent vulnerability of Sri Lanka’s external account to international energy dependencies and domestic speculative cycles. (Colombo/June 18/2026)