Rupee depreciates 5.6% against USD in 2025

Monday, 5 January 2026 05:46 - - {{hitsCtrl.values.hits}}

Sri Lanka’s rupee weakened against the US dollar in 2025, posting an annual depreciation of 5.6%, reversing the strong gains recorded over the previous two years.

The decline follows a sharp recovery phase in 2023 and 2024, when the currency appreciated by 12.1% and 10.7%, respectively, supported by tight monetary policy, import controls, improved external balances, and inflows linked to the International Monetary Fund (IMF)-supported reform program.

The 2025 depreciation contrasts with the stabilisation trend seen after the currency crisis of 2022, when the rupee collapsed by 44.8% amid severe balance-of-payments stress, depleted reserves, and a suspension of external debt servicing.

Prior to the crisis, the rupee had shown a persistent weakening bias. It depreciated by 7% in 2021 and 2.6% in 2020, while recording a marginal appreciation of 0.6% in 2019.

Market analysts note that the 2025 movement reflects a more flexible exchange-rate environment, gradual normalisation of import demand, external debt-related outflows, and reduced intervention, rather than disorderly pressure.

They add that currency performance in the coming period will hinge on reserve accumulation, export growth, remittance inflows, capital flows, and progress on debt restructuring, alongside global dollar conditions.

The rupee began to moderately depreciate in early 2025. The recent post-Ditwah IMF staff paper said the exchange rate depreciated in early December but remains range-bound.

The IMF said the current account deficit could widen by around $ 700 million, or 0.7% of GDP, over the next 12 months.

IMF staff noted that Sri Lanka entered the disaster period with stronger macroeconomic fundamentals, after reforms had supported a recovery and restored stability. Gross official reserves had risen to about three months of imports, and inflation had remained low before the cyclone.

On this basis, staff project growth returning to potential at around 3.1% in 2027, with inflation easing back towards target and the current account deficit narrowing as tourism and agricultural exports recover and emergency-related imports subside.