• Rupee depreciates 1.72% in January after strong performance in 2024
• Central Bank warns of potential risks to external sector stability

The Sri Lankan rupee was seen as the worst performing emerging market currency by the end of fourth week of January after ranking top in 2024, Bloomberg market data showed.

Accordingly, the rupee has recorded a negative spot return of 1.72% for 2025 as of the end of 24 January.

Other worst performing emerging market currencies were Argentine peso and Turkish lira with negative spot return of 1.46% and 0.89% respectively.

The Russian ruble was the top emerging market currency so far in 2025 with 16.07% spot return, while the Colombian peso took the second place with 5.45% return.

The Sri Lankan rupee ended 2024 as the top performing emerging market currency with 10.85% return after the rupee appreciated to below Rs. 300 per US dollar.

Sri Lanka earned a combined dollar earning of $ 9.6 billion from tourism and remittances in 2024 and exports at $ 13 billion while the Central Bank purchased about $ 2.6 billion from the market driving the rupee high with imports amounting only to $ 18 billion.

In their report to the parliament on breaching the inflation target for the second and third quarters of 2024, the Central Bank said that although the external sector has stabilised to a great extent, the higher-than-expected economic growth observed thus far in 2024 and the robust growth anticipated during the period ahead suggest a possible rise in aggregate demand going forward.

In addition, it said that the planned relaxation of motor vehicle imports after several years could also result in higher import demand and a deficit in the external current account is expected from 2025.

“Further, future movements of commodity prices in the global market are highly uncertain at present due to heightened geopolitical tension,” the Central Bank said.

In such a context, it added that an overly accommodative monetary policy stance could exacerbate import demand at times of resumption of external debt servicing, thus posing risks to external sector stability and inducing a large depreciation of the exchange rate.