Sri Lanka Rupee Slides 7.9% in H1 2026 as Bank Steps In

The Sri Lanka rupee lost 7.9 percent against the US dollar in the first half of 2026, the Central Bank of Sri Lanka reported, as the monetary authority shifted from accumulating reserves to defending the currency.

The CBSL released its Market Operations Report for June 2026 on 31 July, showing the indicative USD/LKR spot rate moved from 309.99 rupees at end-December 2025 to 336.66 by June 30, 2026, driven by heightened global uncertainties and elevated foreign exchange demand.

The Depreciation and Where the Rupee Stands Now

By Monday August 3, the rupee was quoted at 335.60/70 to the dollar in the spot market, with the telegraphic transfer rate at 331.25 buying and 340.25 selling. Government bond yields ranged from 11.25/30 percent for the 2030 maturity to 12.60/70 percent for the 2037 bond. Interbank foreign exchange activity moderated during the half before improving towards the end of the period.

A Tale of Two Quarters

The CBSL's intervention strategy shifted sharply. In the first quarter, it purchased 791 million dollars and sold 81 million, recording net purchases of 710 million. In the second quarter, purchases collapsed to 191 million while sales surged to 345 million, making the central bank a net seller of 154 million dollars.

Total net purchases for the half-year stood at 556 million dollars. The CBSL said its intervention was “primarily aimed at curtailing undue exchange rate volatility while accumulating reserves at opportune times.”

Reserves Peak Then Slide

Gross official reserves, including the People's Bank of China swap facility, hit a post-crisis peak of 7.3 billion dollars at end-February 2026, up from 6.8 billion at end-2025. By end-June, they had fallen to 6.5 billion dollars.

Money market surplus liquidity averaged 199.5 billion rupees, peaking at 403.8 billion in early March before thinning to 82.6 billion by end-June, supported primarily by the central bank's net foreign exchange purchases.

Policy Tightening Bites

On May 26, the CBSL raised its Overnight Policy Rate by 100 basis points from 7.75 to 8.75 percent. The Average Weighted Call Money Rate rose from 8.04 percent at end-2025 to 9.23 percent by end-June, while the Average Weighted Repo Rate climbed from 8.06 to 9.25 percent. The central bank said tightening, alongside macroprudential and foreign exchange measures, “supported external sector stability.”

Looking Ahead

Rupee deposit growth moderated during the half, while currency in circulation and reserve money increased. The central bank's holdings of government securities declined marginally, and the Statutory Reserve Requirement framework was refined to strengthen reserve management. Sri Lanka is set to issue 140,000 million rupees in Treasury bills through an auction on August 5.