Business

Rupee volatility exposes deeper structural weaknesses, says fintech industry leader

Published

2 months ago

2026/05/19

The continued depreciation pressure on the Sri Lankan rupee is exposing deep-rooted structural weaknesses within the economy, while simultaneously creating limited opportunities for export-oriented sectors, according to Rajkumar Kanagasingam.

Kanagasingam warned that while some export industries may temporarily benefit from a weaker currency, the broader economic strain caused by rising import costs, inflationary pressures, and investor uncertainty continues to weigh heavily on businesses and consumers alike.

Speaking to The Island Financial Review, he said local industries are struggling to absorb rising costs linked to imported raw materials, machinery, fuel, and intermediate goods as the rupee remains under pressure.

“Local industries are coping through cost-cutting measures, selective price increases, tighter inventory management, and delaying certain capital investments,” he said. “Many businesses are also exploring alternative suppliers and improving operational efficiency to manage rising import-related costs.”

He noted that import-dependent sectors are among the hardest hit by currency depreciation, particularly construction, transport, pharmaceuticals, manufacturing, and food imports, where businesses face mounting operational expenses and shrinking margins.

At the same time, Kanagasingam observed that export-oriented sectors such as apparel, tea, IT services, tourism, and businesses promoting local substitutes may gain some competitive advantage from the weaker rupee, as foreign exchange earnings translate into higher rupee revenues.

“A weaker rupee can improve the competitiveness of export-oriented sectors by increasing rupee earnings from foreign exchange,” he explained. “However, the benefits may be partially offset by higher imported input costs, energy expenses, and broader economic pressures.”

He stressed that small and medium-scale enterprises (SMEs) remain significantly more vulnerable than larger corporates during periods of currency instability.

“SMEs generally have limited financial buffers, less access to foreign currency, and weaker bargaining power,” he said. “Larger corporates are typically better positioned to manage exchange rate fluctuations through stronger reserves, export earnings, and diversified financing options.”

Kanagasingam added that consumers are ultimately carrying much of the burden created by rupee depreciation, with higher prices increasingly visible across food, transport, utilities, imported goods, and daily services.

“In many cases, increased business costs are gradually passed on to consumers,” he said, warning that sustained currency weakness could continue to fuel inflationary pressure across the economy.

He also pointed to a growing shift among local manufacturers toward localization and import substitution as businesses attempt to reduce reliance on imported inputs.

“There is growing interest in strengthening domestic supply chains and local production,” he noted. “However, Sri Lanka still faces challenges in terms of industrial scale, technology, and the availability of locally sourced raw materials.”

According to Kanagasingam, persistent currency volatility also undermines investor confidence and complicates long-term industrial planning.

“Currency fluctuations create uncertainty for investors, particularly in areas such as pricing, financing, debt servicing, and long-term project planning,” he said. “Greater exchange rate stability generally improves investor confidence and supports long-term industrial growth.”

He urged policymakers and the Central Bank to prioritize macroeconomic stability, foreign reserve strengthening, export expansion, energy efficiency, and targeted support for SMEs in order to cushion the impact of exchange rate volatility.

“The priority should be maintaining macroeconomic stability, strengthening foreign reserves, supporting export growth, improving energy efficiency, encouraging local production, and providing targeted support for SMEs,” he said. “Consistent and predictable policy measures are also essential to strengthen investor confidence.”

Kanagasingam further cautioned that prolonged rupee depreciation could eventually lead to job losses in sectors heavily dependent on imports.

“Prolonged depreciation could place pressure on import-dependent industries, potentially leading to reduced production, delayed expansion, and job losses, particularly among smaller businesses and vulnerable sectors,” he warned.

Describing the current exchange rate situation as more than a temporary market adjustment, Kanagasingam said Sri Lanka must address its long-standing structural vulnerabilities if it hopes to achieve lasting currency stability.

“It reflects both short-term external pressures and deeper structural challenges within the economy,” he said. “These include high import dependence, limited export diversification, debt-related pressures, and the need for stronger foreign exchange generation over the long term.”

Economic analysts note that the rupee’s trajectory in the coming months will remain closely tied to external debt management, reserve accumulation, export performance, remittance inflows, and broader investor sentiment surrounding Sri Lanka’s economic recovery efforts.

By Ifham Nizam

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Business

Trust, security and collaboration seen as pillars of growth in digital payments

Published

17 hours ago

2026/07/21

Thilina Walpola

Experts at the Visa-led forum

Visa successfully hosted the Visa Sri Lanka Cybersecurity Conclave 2026 on 25 June 2026, convening leaders from the banking sector, Government, regulators and industry bodies to foster dialogue on evolving cyber threat landscape and the collective action needed to strengthen cyber resilience across Sri Lanka’s digital economy.

As digital payments continue to expand, cybersecurity remains critical to sustaining trust, protecting consumers and businesses, and supporting a more inclusive digital economy. The conclave served as a focused platform for industry dialogue on emerging cyber threats, fraud prevention, regulatory readiness and public-private collaboration in safeguarding consumers, businesses and the wider financial ecosystem.

The event featured expert-led sessions by Visa leaders, covering Cyber Threat landscape, AI-driven Cybersecurity, Visa Cyber Solutions and Advisory, Risk landscape and AI-powered Fraud Prevention introducing Featurespace. Discussions underscored the increasing sophistication of cyberattacks and fraud patterns, particularly as AI-enabled threats create new challenges for financial institutions, regulators, and businesses.

A senior-level panel discussion brought together Sirikumara Kudagama, Deputy Governor of the Central Bank of Sri Lanka; Waruna Dhanapala, Secretary to the Ministry of Digital Economy; Brigadier K.V.P. Dhammika, Director of Cyber Command and Information Warfare Centre; Mr. Kapila Hettihamu, Chief Risk Officer of Commercial Bank of Ceylon; and Avanthi Colombage, Country Manager, Sri Lanka and Maldives, Visa. The panel delved on Sri Lanka’s changing cyber risk environment and the need for stronger preparedness across the financial sector, with emphasis on proactive threat intelligence, real-time response capabilities, stronger information sharing, capacity building, robust regulatory frameworks and the adoption of advanced security solutions to help institutions stay ahead of emerging risks.

Waruna Dhanapala, Secretary to the Ministry of Digital Economy, said, “As Sri Lanka advances its digital transformation, cybersecurity is a national priority and a critical enabler of trust in the digital economy. The expansion of digital payments and technology-enabled commerce presents significant opportunities, but also requires coordinated action, strong safeguards and trusted partnerships. Initiatives such as the Visa Sri Lanka Cybersecurity Conclave 2026 are valuable in bringing together government, regulators, financial institutions and industry leaders to exchange insights, address emerging risks and strengthen collective resilience. We value the role that global payments leaders such as Visa continue to play in supporting Sri Lanka’s digital ecosystem through expertise, innovation and collaboration. This conclave was a timely effort to reinforce the shared responsibility needed to build a secure, resilient and inclusive digital economy for the country.”

Commenting on the success of the conclave, Avanthi Colombage, Country Manager, Sri Lanka and Maldives, Visa, said, “As Sri Lanka’s digital economy continues to grow, cybersecurity is fundamental to building trust in digital payments. At Visa, we are committed to working closely with regulators, financial institutions and ecosystem partners to support safer, more resilient digital commerce for consumers and businesses. Strengthening cyber resilience is not the responsibility of one institution alone. It requires collaboration, preparedness and continued investment across the ecosystem. Through initiatives such as the Visa Sri Lanka Cybersecurity Conclave 2026, Visa continues to support Sri Lanka’s financial ecosystem with global expertise, practical insights and security-led solutions that help protect the future of digital commerce in Sri Lanka.”

Business

First Capital maintains Bond Yield Outlook for 2026, identifies market recovery potential in 2027

Published

17 hours ago

2026/07/21

Thilina Walpola

First Capital Holdings PLC, a subsidiary of JXG (Janashakthi Group) and a key player in Sri Lanka’s capital markets landscape, has maintained its outlook for Sri Lanka’s fixed income and equity markets, forecasting stable bond yields through 2026 while identifying potential opportunities emerging in 2027 as economic conditions improve.

According to the First Capital Mid-Year Outlook 2026, bond yields are expected to remain within current forecast ranges during 2026, with a 50 basis point premium introduced to the longer end of the yield curve in the first half of 2027 due to continued concerns surrounding debt sustainability and the pace of structural reforms.

First Capital expects inflation to average 6% in 2026, with recent monetary policy tightening by the Central Bank of Sri Lanka supporting inflation stability. However, the higher interest rate environment is expected to weigh on economic growth and credit expansion, creating potential room for a rate reduction during the first half of 2027.

Commenting on the outlook, Dimantha Mathew, Chief Research & Strategy Officer of First Capital Holdings PLC, said, “The recent tightening in monetary policy has helped stabilise inflation expectations, although it is expected to moderate economic momentum in the near term. We believe investors should remain positioned within shorter tenures, providing a dual opportunity with potential capital gains as yields are expected to normalise and move down towards our targeted bands, whilst attractive carry opportunities remain available for investors. While progress on reforms remains critical, improving macroeconomic stability could create favourable conditions for market recovery over the medium term.”

First Capital forecasts the Average Weighted Prime Lending Rate (AWPR) to remain between 10.0%–11.0% during the second half of 2026, before easing to 9.5%–10.5% in the first half of 2027, supported by moderating GDP and credit growth and stabilising liquidity conditions.

The Sri Lankan Rupee is expected to remain within a range of LKR 325–335 against the US Dollar during the second half of 2026, with a gradual depreciation to LKR 335–345 anticipated in the first half of 2027 as external pressures and foreign exchange dynamics evolve.

In equities, First Capital maintains its 2026 All Share Price Index (ASPI) base case fair value target of 20,500 and introduces a 2027 target of 24,500, supported by expectations of softer inflation, earnings recovery, improving liquidity and a gradual easing of monetary policy. Given the expected near-term sideways movement in the market, First Capital recommends a higher cash allocation of 50% to enable investors to capitalise on potential entry opportunities ahead of a broader recovery.

The First Capital Mid-Year Outlook 2026 reflects the institution’s continued commitment to providing research-driven market insights and supporting investors in making informed investment decisions amid Sri Lanka’s evolving economic landscape.

Business

Bourse trading plunges in the wake of continuing US-Iran hostilities

Published

17 hours ago

2026/07/21

Thilina Walpola

The CSE was trending down yesterday as external environmental issues, especially the US-Iran hostilities, continued to impact the global economy adversely.

The All Share Price Index went down by 170.60 points, while the S and P SL20 declined by 43.39 points. Turnover stood at Rs 2.63 billion with four crossings.

Turnover stood at Rs 2.63 billion with four crossings. Those crossings were: CT Holdings crossed 1.1 million shares to the tune of Rs 551 million; its shares traded at Rs 510, Cargills Ceylon 856,000 shares crossed for Rs 145 million; its shares sold at Rs 630, LMF 232 million shares crossed for Rs 232 million; its shares sold at Rs 84 and Dialog 457,000 shares crossed to the tune of Rs 20 million; its shares sold at Rs 43.

In the retail market companies that mainly contributed to the turnover were; JKH Rs 109 million (5.5 million shares traded), Haycarb Rs 93 million (535,000 shares traded), CCS Rs 60 million (447,000 shares traded), Bairaha Farm Rs 54 million (626,000 shares traded), Ambeon Capital Rs 48 million (1.6 million shares traded), LMF Rs 47 million (556,000 shares traded) and ACL Cables Rs 44 million (455,000 shares traded). During the day 56 million share volumes changed hands in 17347 transactions.

It is said that manufacturing sector counters, especially JKH, performed well. Further, beverage sector counters, especially Cargills and CCS performed significantly well.

Yesterday the rupee was quoted at Rs 336.20/30 to the US dollar in the spot market, from Rs 336.15/25 Friday, while bond yields edged up, dealers said.

The telegraphic transfer rate for the dollar was 331.80 buying, Rs 340.80 selling; the euro was 376.9467 buying, 390.8637 selling; and the pound was 445.4833 buying, 459.5289 selling.

By Hiran H. Senewiratne