• Investor confidence up as Dissanayake’s policies prove less disruptive
• Rupee appreciates despite potential pressures from import demand and geopolitical tensions

The non-radical approach by President Anura Kumara Dissanayake is pushing up the rupee due to improving investor sentiment, Bloomberg Intelligence said.

Accordingly, the rupee which was volatile and fell in the run-up to the Presidential Election on 21 September, has been appreciating since then.

“Our foreign exchange decomposition model suggests improving investor sentiment is pushing up the currency, the main reason - new president Anura Kumar Dissanayake’s recent steps suggest that he’s not as radical as the market was thinking,” Bloomberg Intelligence said.

According to them, the cumulative contributions of four factors have moved the rupee up since 1 September - domestic sentiment, growth and monetary policy, and US growth.

“The rupee has strengthened by around 2% against the dollar since early September,” the report said.

According to the Central Bank, the Sri Lankan rupee appreciated against the US dollar by 10.5% during the year up to 11 October.

The Central Bank said that the anticipated gradual pick up of import demand due to economic recovery amidst the relaxed monetary policy stance and the relaxation of restrictions on vehicle imports will exert pressure on the rupee unless this outflow requirement is compensated by increased inflows, especially by long term oriented foreign direct investments.

Furthermore, it said that if the geo-political tensions, particularly in the Middle East, escalate, it would affect inflow of worker remittances, expenditure on fuel and trade.