Currency slides 2.2% amid growing trade deficit and rising import demand
The Sri Lankan rupee has emerged as one of the weakest performers among emerging market currencies so far in 2025, with a year-to-date depreciation of 2.21%, according to Bloomberg market data. Among a basket of 30 emerging market currencies, the rupee ranks 26th in terms of performance.
The data reveals that 23 of the 30 emerging market currencies have appreciated since the start of the year. Leading the pack is the Russian ruble, which boasts a spot return of 37.5%, followed by the Hungarian forint with an 11.36% gain. In contrast, Sri Lanka’s rupee is among seven currencies that have depreciated, with the Argentine peso performing the worst with a negative return of 11.79%.
One of the key pressures facing the Sri Lankan currency is a widening trade deficit. The country’s trade gap grew to $1.14 billion in the first two months of 2025, up from $860 million in the same period last year. The Central Bank of Sri Lanka attributes this increase to rising import demand, which has surged following the relaxation of import restrictions. This trend is supported by an uptick in economic activity, greater business and household spending, and more accommodating monetary conditions.
Despite an immediate softer-than-expected demand for vehicle imports, the Central Bank projects that the merchandise trade deficit will continue to widen in 2025. However, it also noted that the current account could record a surplus this year, depending on how vehicle import policies evolve. In the medium term, the current account is expected to return to a pattern of sustainable deficits.