IMF insists exchange-rate flexibility remains first line of defence

Wednesday, 1 July 2026 00:26 - - {{hitsCtrl.values.hits}}

Reiterates limited role for foreign exchange intervention

The International Monetary Fund (IMF) yesterday said exchange-rate flexibility should remain the primary mechanism for absorbing external shocks, while indicating that assessments of market volatility depend on economic circumstances rather than fixed thresholds.

Speaking at a media briefing, IMF Mission Chief Evan Papageorgiou said there was no universal definition of “excessive volatility”, explaining that what constitutes excessive exchange-rate movements differs across countries and economic conditions.

He said volatility becomes a concern when it risks destabilising domestic markets or creates actual or perceived spillovers to other parts of the economy, adding that these assessments are made through continuing discussions with the authorities.

Papageorgiou also clarified that the IMF evaluates Sri Lanka’s inflation performance under the Monetary Policy Consultation Clause against the Central Bank’s consultation bands rather than solely against the midpoint inflation target.

He said the Fund would assess inflation outcomes during the Seventh Review and determine whether the consultation bands had been met and, if not, examine the reasons for any deviation.

The IMF’s position is that monetary policy should remain data-dependent, with foreign exchange intervention confined to addressing excessive volatility while allowing the exchange rate to adjust to changing economic conditions.