The Sri Lankan central bank CBSL devalued its currency as its foreign exchange reserves fell to $2.31bn at end-February, its lowest since November 2021. It set an exchange rate limit of USD/LKR 230 from an “unofficial dollar peg since October at 200-203″, as per Reuters. The CBSL added that it will “continue to closely monitor the developments in the domestic foreign exchange market and make appropriate policy adjustments accordingly”. The depreciation is expected to encourage remittances which have dropped to a 10Y low of $5.49bn in 2021 and increase investment. The jump in oil prices due to the Russia-Ukraine crisis is also expected to hurt its tourism sector. The island nation has resorted to long power cuts, import restrictions and bilateral loans due to its shortage of dollar reserves. The nation had only recently ruled out an IMF bailout and its depleting forex reserves raises risks of default on its July dollar bond repayment.
Sri Lanka has a $1bn 5.875% dollar bond maturing in July 2022 that is currently down 5.1 points, trading at 66.4.
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