StanChart Predicts Sri Lanka Rupee Woes to Persist as Oil Soars

(Bloomberg) -- Standard Chartered Plc. is predicting more pain for the Sri Lankan rupee, which has been setting a string of record lows amid surging oil prices and a rout in emerging-market assets.

The island nation’s rupee has dropped more than 10 percent against the dollar this year, approaching the record-breaking declines suffered by neighbor India’s rupee.

The nation’s current-account deficit, low foreign-currency reserves and rising oil prices are likely to weigh down on the currency, Divya Devesh, head of ASEAN and South-Asia Forex research, said by email. He is predicting the rupee to decline to 175 per dollar by year-end. The currency traded at a record low of 170.06 at 10:30 a.m. local time.

Efforts by Sri Lanka’s central bank and its government to prop up the sagging currency has so far yielded little. The Central Bank of Sri Lanka on Tuesday held back from raising rates to bolster the currency as it chose to support a nascent recovery in the South Asian island nation’s economy. Governor Indrajit Coomaraswamy is expecting funds from a $1 billion syndicated loan from China within a week and is also looking to sell dollar bonds, Panda bonds and Samurai bonds.

Click here to read about Sri Lanka’s efforts to prop up rupee

The government has taken measures to narrow the current account deficit including curbing of non-essential imports. Still the deficit is likely to remain close to 2.5 percent of gross domestic product, Saurav Anand, South Asia economist at Standard Chartered, said in an email. The country will continue to be dependent on external borrowings to finance the deficit amid rising yields, Anand said.

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