Sri Lanka’s First Capital Research expects LKR to depreciate approximately by 12 percent during this year.
“With the weak foreign currency reserve position, high foreign currency debt repayment and a possible spike in consumer demand triggering higher imports are likely to result in a steep depreciation in 2021. We expect LKR to depreciate approximately c.12.0% during the year,” it said in its forecast for 2021.
First Capital predicted that there’s a higher probability for LKR to depreciate to closer to Rs 202 per USD by June this year and Rs 215 per USD by the end-December this year.
“Steep depreciation in 1H while a partial stabilization could be expected towards 4Q2021 possibly amidst higher local yields,” it added.
Amidst steep depreciation of the Rupee during the early part of last month, the Central Bank recently prohibited the licensed commercial banks from entering into forward agreements for foreign exchange for three months, virtually shutting down the country’s forward forex market.