Colombo February 28 2023: Sri Lanka allowed its currency to trade in a wider band, stepping up efforts to secure a $2.9 billion International Monetary Fund bailout. The rupee advanced.
The currency was allowed to trade at a maximum of 5 rupees from the middle rate effective Monday, the central bank said on its website. The trading band, which was introduced in May, had been set at 2.6 rupees since October. The currency climbed as much as 1.3% to 359.52 per dollar on Tuesday.
Sri Lanka joins some of the world’s most indebted nations in loosening its grip on their currencies in order to unlock financing from the IMF. Pakistan, Egypt and Lebanon were among those that have dropped their exchange rates this year. The IMF funds are crucial for Sri Lanka as dollar shortages have left it unable to pay for imports of medicine and food, with the economy deep in a recession.
“The currency’s immediate strengthening reflects optimism the IMF program may come through imminently,” said Sanjeewa Fernando, senior vice president of research at Asia Securities Pvt Ltd in Colombo. “Real reforms are progressing, but the fruits of them will show in the medium term.”
The rupee advanced nearly 2% this year, after sliding 45% in 2022 as the nation defaulted on its sovereign debt. Sri Lanka is in talks with creditors for debt restructuring, another key condition for the IMF to approve a loan to the nation.
