LKR remains 8% weaker against dollar, according to the latest data, as Sri Lanka’s currency continued to face pressure from rising import demand despite improving global market conditions.
LKR remains 8% weaker against dollar as import demand keeps pressure on the rupee
The latest figures released by the Central Bank of Sri Lanka showed that the Sri Lanka rupee remained 8 percent weaker against the US dollar in the week ended June 26, with the pace of depreciation unchanged from the previous week.
The local currency has experienced sustained pressure in recent months as import demand recovered, credit growth strengthened and global energy market uncertainties weighed on market sentiment. These factors increased demand for foreign exchange, limiting the rupee’s ability to recover despite favourable developments in international commodity markets.
One of the key external risks affecting the currency in recent weeks was the sharp rise in global crude oil prices triggered by tensions in the Middle East. Concerns over potential supply disruptions had pushed energy prices higher, raising fears of increased import costs for oil-importing economies such as Sri Lanka.
However, market conditions improved during the latest reporting week after geopolitical tensions eased following the US-Iran peace agreement and the reopening of the Strait of Hormuz, one of the world’s most important oil shipping routes.
As supply concerns subsided, international oil prices recorded notable declines. Brent crude prices fell by US$ 5.08 per barrel during the week, while West Texas Intermediate (WTI) crude dropped by US$ 4.96 per barrel. Lower oil prices are expected to ease pressure on Sri Lanka’s import bill if the trend continues in the coming weeks.
Despite the improvement in external conditions, LKR remains 8% weaker against dollar, reflecting that domestic demand for foreign currency continues to outweigh the positive impact of declining energy prices.
The Central Bank of Sri Lanka has closely monitored developments in the foreign exchange market as the economy continues its gradual recovery. Stronger business activity and expanding private sector credit have supported economic growth but have also contributed to higher demand for imports and foreign exchange.
Meanwhile, inflationary pressures have shown signs of strengthening. Official data indicated that inflation accelerated to 5.4 percent in May, up from 4.7 percent recorded in April. The increase suggests that domestic price pressures remain elevated, even as global commodity prices begin to moderate.
Higher inflation, together with rising import demand, could continue to influence currency movements in the near term, although easing oil prices may provide some relief if global market stability is maintained.
Market participants will continue to monitor external developments, including global oil prices, international financial conditions and domestic economic indicators, for signals on the future direction of the Sri Lanka rupee. The outlook for the currency will also depend on import demand, export earnings, tourism inflows and broader foreign exchange market conditions.
While recent geopolitical developments have reduced immediate concerns over energy supplies, the latest data indicate that Sri Lanka’s currency remains under pressure from domestic economic factors, with policymakers expected to closely assess evolving risks in the months ahead.