Lankan central bank can manage challenges of devaluation

Sri Lanka devalued its currency to improve macroeconomic stability as the country struggles with its worst financial crisis in years, central bank chief Ajith Nivard Cabraal said on Friday.

The central bank this week introduced a flexible exchange rate framework, which saw the rupee depreciate by around 30 per cent to 260 rupees against the dollar on Thursday.

“The decision to impose a flexible exchange rate has caused challenges but we are confident these can be managed,” Cabraal said in a video uploaded on Facebook. “However, it was a step taken to maintain macroeconomic stability and ensure financial system consistency,” he added. Cabraal also said the central bank would closely monitor the impact of the devaluation across the economy and take appropriate policy decisions.

Prices of items such as bread, flour and airline tickets increased by 30 per cent on Friday as retailers adjusted costs to reflect the new rupee rate. Inflation had already hit 16.1 per cent in February.

“We expect the price volatility caused by the depreciation to stabilise over the next few days.”