Is LKR Appreciation Sustainable?

Is LKR Appreciation Sustainable?


As the traditional new year dawned the Presidential Media Division announced that the Sri Lanka’s Rupee (LKR) has been identified as the top-performing currency among emerging markets in the first quarter of 2024,whih is undoubtedly an accomplishment .

According to Bllomberg the spot return has exceeded 7%. The Sri Lankan Rupee (LKR), which was termed as ‘world’s worst performing currency’ in April 2022 is now a top performer.
As against the USD LKR registered  203.00 by the end of 2021 how ever after the crisis situation LKR depreciated to 367.00 and now the downhill trend has been turned around.
Currently LKR stands at 298.00 against the dollar which is certainly a  bounce  back.


Complex Reasoning: 

The underlying reasons are complex. The appreciation of the LKR has been attributed to putting a hold on money printing, limiting credit with more market determined interest rates, not currently serving foreign debt and controls on consumption and imports etc have helped appreciation of the LKR.

Former Deputy Governor of the CBSL Dr. W.A. Wijewardena points out that that the factors that would contribute to a permanent stabilisation of the rupee-dollar rates were still not present in the Sri Lankan economy.

Over all the fundamental issues that caused the currency depreciation are still at play and most of them still remain unfixed.
Most of these issues relate to bad governance rooted in political mismanagement.
While the LKR is currently appreciating, long-term predictions suggest a potential weakening in the future.


Click for Long Term Forecast 

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