CBSL dismisses currency performance as sole indicator of economic stability

Thursday, 30 January 2025 00:10 - - {{hitsCtrl.values.hits}}

Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe yesterday sought to dispel misconceptions about the relationship between currency movements and overall economic stability, stressing that the strength or weakness of a currency does not singularly define economic performance.

Speaking at the post-monetary policy meeting media briefing, he stated that many tend to equate a stronger currency with a robust economy and a weaker currency with economic distress. “This is an incorrect comparison,” he asserted.

Pointing to global examples to illustrate his argument, he cited India and China – two of the world’s fastest growing economies whose currencies have depreciated to historic lows against the US Dollar despite holding massive foreign exchange reserves.

“India’s reserves stand at around $ 640 billion, while China holds $ 1.3 trillion — yet both currencies have weakened to the lowest against the US Dollar. Despite these depreciations, both countries remain among the best performing economies globally,” he added.

The Governor underscored the importance of a flexible exchange rate, explaining that currency movements should be bidirectional, rather than following a one-way trajectory.

CBSL data showed that following an appreciation of 10.7% in 2024, the Sri Lanka Rupee recorded a year-to-date (YTD) depreciation of around 1.8% against the US Dollar thus far in 2025.

He pointed out that under a properly functioning, market-driven system, fluctuations in exchange rates are natural and do not necessarily indicate economic distress.

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