Sri Lanka rupee depreciates 7.9% in H1 2026 as Central Bank intervenes

Sri Lanka
By Editor_1

COLOMBO – The Sri Lanka rupee depreciated by 7.9% against the US dollar in the first half of 2026 amid heightened global uncertainties and elevated foreign exchange demand, the Central Bank of Sri Lanka (CBSL) said.

The CBSL’s latest Market Operations Report (MOR) for June 2026 showed that the indicative USD/LKR spot exchange rate moved from 309.99 rupees per US dollar at the end of December 2025 to 336.66 rupees per US dollar by June 30, 2026.

To curtail exchange rate volatility and build reserves at opportune times, the monetary authority said it intervened in the domestic foreign exchange market, remaining a net purchaser overall despite shifting to a net seller position in the second quarter.

“The Central Bank intervention in the domestic foreign exchange market was primarily aimed at curtailing undue exchange rate volatility while accumulating reserves at opportune times.”

In the first quarter of 2026, the CBSL purchased 791 million US dollars and sold 81 million US dollars, recording net FX purchases of 710 million US dollars.

In the second quarter, purchases fell to 191 million US dollars while sales increased to 345 million US dollars, making the central bank a net seller of 154 million US dollars.

Total net foreign exchange purchases for the first half of 2026 stood at 556 million US dollars.

Gross official reserves, including the PBOC swap facility, reached a post-crisis peak of 7.3 billion US dollars at end-February 2026, up from 6.8 billion US dollars at the end of 2025, before dropping to 6.5 billion US dollars by end-June 2026.

Interbank foreign exchange market activity moderated during the period before improving toward the end of June.

The central bank raised its Overnight Policy Rate (OPR) by 100 basis points on May 26, from 7.75%to 8.75%.

Short-term interest rates responded swiftly to the move.

The Average Weighted Call Money Rate (AWCMR) increased from 8.04% at end-December 2025 to 8.99% on May 26, and further to 9.23% by end-June.

The Average Weighted Repo Rate (AWRR) also rose from 8.06% at end-2025 to 9.02% on May 26, reaching 9.25% by the end of June.

“Tightening of monetary policy, along with macroprudential and foreign exchange-related measures, supported external sector stability,” the central bank said.

Money market liquidity remained in surplus, averaging 199.5 billion rupees during the first half of 2026.

Market surplus peaked at 403.8 billion rupees in early March before declining to 82.6 billion rupees by end-June.

The main drivers of liquidity injections were net FX purchases of 170.0 billion rupees, net FX swaps of 92.5 billion rupees, and profit transfers to the government of 41.9 billion rupees.

These liquidity injections were offset by liquidity absorptions, including net foreign loan repayments of 211.5 billion rupees, coupon payments on Treasury bond holdings of 94.4 billion rupees, net currency withdrawals of 72.7 billion rupees, and Treasury bond maturities of 10.8 billion rupees.

The CBSL added that rupee deposit growth moderated during the first half of 2026, while reserve money and currency in circulation increased, and the central bank’s holdings of government securities declined marginally.

-economynext.com

Editor_1
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