ECONOMYNEXT – The Sri Lankan rupee is expected to weaken further next year, possibly to the 148-160 rupee to the US dollar level if monetary policy is not tightened, private sector economists have forecast.
The rupee, which has depreciated sharply this year, down 8.7 percent against the US dollar, hit a record low of 143.80 last week but closed at 143.65/90 per dollar Monday.
Shiran Fernando, Head of Economic Research, Frontier Group, said he expects the rupee to continue to weaken in 2016, a year likely to see more economic uncertainty.
The local currency could fall to 148 and as much as 160 rupees to the dollar in 2016, he told a forum at Ceylon Chamber of Commerce on what Sri Lankan businesses should look out for next year.
“If we continue to depreciate about a rupee a month against the dollar, which is what we’re seeing now and no action is taken on interest rates, then probably we’ll see more depreciation, greater than 160,” Fernando said.
He said he expects more volatility in the rupee and a sharp rise in interest rates in 2016. Deshal De Mel, Senior Economist of the Hayleys Group, told the forum he believes the rate of depreciation could be lower.
“A lot of the depreciation has already happened. So I would expect interest rates to take a bigger brunt (of the adjustment),” he told the forum.
“I expect not more than five percent depreciation unless there are greater shocks.”
Sri Lanka has a so-called soft-pegged exchange rate where the central bank prints money to manipulate interest rates down, generating one sided currency depreciation.
Countries where monetary policy is more prudent and the exchange rate does not move including Hong Kong and Dubai, raised their indicative policy rate by 25 basis points this month soon after the Fed raised its rate. (Colombo/December 22, 2015)