Business

The current exchange rate arrangement

Published

4 years ago

2022/06/7

Background, positive impact thus far, and expected outcomes

This note is intended to explain to the general public the background to the current exchange rate arrangement, and the positive impact it has already made, and expected outcomes in the period ahead.

The country is facing extremely challenging economic circumstances at present while it is going through the worst balance of payments crisis in history. The Sri Lanka rupee was subject to tremendous depreciation pressure, amidst the shortage of foreign exchange liquidity in the domestic foreign exchange market, warranting a measured adjustment in the determination of the exchange rate in early March 2022, compared to the level that prevailed in the market amidst concerns about the adverse impact of any large depreciation of the exchange rate on the society. However, the outcome of the exchange rate flexibility that was thereafter allowed following the initial measured adjustment fell short of expectations due to the large overshooting by market forces, reflecting the significant liquidity pressures that prevailed in the domestic foreign exchange market as well as the delay in market correction.

This behaviour of exchange rate since allowing more flexibility in March 2022 suggests the need for careful sequencing of measures when allowing flexibility in exchange rate under balance of payments crisis conditions. Following the excessive depreciation, inflation accelerated significantly through imported prices, while second-round effects of such excessive depreciation on other goods and services were also observed subsequently. Moreover, due to the acute shortage of foreign exchange in the domestic foreign exchange market, along with continuous depreciation of exchange rate, the conversions of foreign exchange by the foreign exchange holders delayed due to expectation of further depreciation and high premium offered in the grey market, thus adding further pressures on the currency. Meanwhile, the demand for foreign exchange in the grey market thrived to part finance rising import demand outside the banking system, causing further pressures on the currency as well as heightening stresses in the banking system.

This significant volatility of the exchange rates drove up the interbank exchange rates as well as customer buying and selling rates in an abrupt nature, causing undue speculation on the currency. Against this backdrop, limiting the extent of depreciation and excessive volatility became necessary. If remained unresolved, such boundless rate of depreciation of the exchange rate could have led to extremely detrimental impact on overall macroeconomic stability, given the severity of the balance of payment crisis that the country is going through at the moment.

Further, during the discussions with the Heads of Treasuries of licensed commercial banks, the need for some guidance to the market from the Central Bank on the degree of volatility of the exchange rate movements was emphasized, while the commercial banks have the prerogative to determine the interbank spot market exchange rate. In consultation with the market players, the Central Bank commenced providing daily guidance on the degree of volatility (with an allowable two-sided variation margin) to all licensed commercial banks from 13 May 2022 based on exchange rate determined in the interbank market on the preceding day. Although this arrangement is often misinterpreted as ‘pegged exchange rate’ regime, there are clear distinctions between the current transitory arrangement and the pegged exchange rate system.

Under the pegged exchange rate regime a fixed middle rate is usually dictated by a central bank, while market driven variable spot rate being considered as the middle rate under the current arrangement. The implementation of this arrangement has brought in a greater stability in the exchange rate determination in both formal market and grey market thus far, while also minimizing excessive margins prevailed in both markets, and the effects of the same are expected to reflect in the exchange rates used for customer transactions.

According to the feedback received from the stakeholders, there exists broader consensus on the current arrangement of the exchange rate, which is market driven with less volatility and more predictability, compared to the earlier arrangement, which experienced excessively volatile of the exchange rate driven more by speculation rather than market forces and economic fundamentals. 3 The Government and the Central Bank implemented several complementary measures, alongside the current exchange rate arrangement, to correct some of the imbalances observed in the external sector, thereby bringing about stability in the domestic foreign exchange market. Restrictions imposed on open accounts and consignment payments terms have helped curtail activity in the grey market, thereby narrowing the gap between the official exchange rate and the grey market rate.

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Business

DevPro and WCIC come together to accelerate women’s economic empowerment in Sri Lanka

Published

8 hours ago

2026/01/30

Thilina Walpola

DevPro and Women’s Chamber of Industry and Commerce (WCIC) signed a formal partnership on Wednesday, 28th January to collaborate in promoting women’s economic empowerment and inclusion in Sri Lanka.

DevPro builds on 30 years of OXFAMs legacy in Sri Lanka and works towards Inclusive Economic Development leveraging expertise in inclusive and climate-resilient market systems and enterprise development and innovation. DevPro’s work is guided by the core values of gender justice, inclusivity and community-led development. Through its recent projects, DevPro has supported over 270 women-led MSMEs, across agriculture, handloom, and tourism-related value chains in five provinces in Sri Lanka through a mix of interventions combining skills development, enterprise strengthening, market linkages, and gender-sensitive community engagement to improve income, resilience, and economic participation.

WCIC is the first women-only trade chamber in the world, dedicated to empowering women entrepreneurs and women-led MSMEs in Sri Lanka through skills-building, business advisory services, networking etc. Among its many initiatives, WCIC’s flagship annual event, “Prathibhabhisheka” – Women’s Entrepreneurs Awards has empowered many women owned and women-led businesses in Sri Lanka to enhance their business resilience and competitiveness through improved governance processes, financial health, market recognition and global expansion.

Through this partnership, both DevPro and WCIC, will leverage their collective expertise, networks and resources to advance women’s economic empowerment and inclusion through projects, capacity building, research and policy advocacy focused on women entrepreneurship development, innovative business models, sustainability certification and credentials, export readiness and market integration and financial literacy and inclusion.

The MoU was signed by Gayani de Alwis, Chairperson of WCIC and Chamindry Saparamadu, Executive Director of DevPro in the presence of senior members of both teams.

Business

FRELLA launches world class wellness products locally with Baurs & Co.

Published

9 hours ago

2026/01/30

Thilina Walpola

FRELLA partners with the French perfumer Véronique Gabai

FRELLA, Sri Lankan-born and internationally-respected natural beauty and wellness brand, is setting the stage to expand operations by entering the Sri Lankan retail market. As the country’s only dedicated wellness company operating at an international scale, this move marks a new chapter for a brand with a growing global presence that has already earned the trust of luxury hotels and international customers.

For over seven years, FRELLA has emerged as Sri Lanka’s leading wellness brand, serving clients and partners across more than 15 international markets. The brand’s entry into the Sri Lankan retail market marks a significant milestone, allowing local consumers to access globally respected wellness products developed from the island’s own healing traditions. This retail expansion is supported through a strategic partnership with Baurs, a trusted 170-year-old Swedish multinational company, ensuring sophisticated distribution and access aligned with international retail standards.

FRELLA is rooted in Sri Lanka’s ancient healing traditions and inspired by centuries-old Ayurvedic wisdom. All FRELLA products are specially designed as holistic wellness solutions for the body, skin, hair, and soul, and focuses on providing nourishment, balance, and healthy aging through refined, modern wellness systems.

Business

Writer Business Services enters Sri Lanka to partner with institutions to provide information management and payments solutions

Published

9 hours ago

2026/01/30

Thilina Walpola

Writer Corporation, one of India’s leading business groups, announced the launch of its subsidiary, Writer Business Services Pvt. Ltd., and the commencement of its operations in Sri Lanka. The expansion reflects Sri Lanka’s strategic importance in Writer’s regional growth plans and its role in supporting a highly regulated digital and financial services market which is currently undergoing digital transformation.

Sri Lanka’s continued focus on strengthening regulatory frameworks, digital platforms, and financial systems is shaping how institutions across banking, government, and enterprise sectors approach their business operations. There is a clear emphasis on secure, compliant, and resilient information and transaction environments that can scale with regulatory and business needs. Writer’s entry into Sri Lanka aligns with this direction, bringing global experience and a partnership-led approach to the market.

As part of its launch, Writer will establish a secure records and information storage facility in Seeduwa, Colombo. Designed to meet global standards for security, compliance, and disaster resilience, the facility will support banks, financial institutions, government bodies, and large enterprises in managing physical and digital information across its lifecycle.

Alongside information management, Writer brings established expertise in integrated payment services to support the modernization of transaction infrastructure across the banking and financial services sector. Its payments capabilities focus on strengthening availability, transaction continuity, and transparency across critical payment channels that underpin institutional reliability and customer confidence.

Writer’s digital payments offerings in Sri Lanka include end-to-end ATM and self-service terminal outsourcing, integrated channel ownership and managed services, field management applications, payment and reconciliation platforms, and remote monitoring with near real-time reporting. These solutions support financial institutions in improving uptime, strengthening governance, and enhancing operational efficiency across payment networks, in line with the continued evolution of electronic and automated payment systems.

Across information management and payments, Writer operates with an integrated portfolio spanning records and information management, business process outsourcing, cloud and digital services, data privacy, cybersecurity and enterprise payments infrastructure. These capabilities support institutions in addressing evolving regulatory requirements, digitization of legacy environments, and rising operational and cyber risks.

Writer’s local presence enables closer collaboration with clients and on-ground delivery, while supporting the development of Centres of Excellence across cybersecurity operations, SOC and NOC services, AI-led solutions, and payments operations and monitoring.

Writer’s Sri Lanka operations will be built, led, and run by Sri Lankan professionals, reflecting a long-term commitment to local talent growth and development.

Commenting on this development, Satyamohan Yanambaka, CEO, Writer Global Services Pvt. Ltd., assured Writer’s long-term commitment to the country’s digital ambitions. He said, “Writer’s entry into Sri Lanka reflects our belief that digital ambition in regulated environments must be supported by trust, sound governance, and strong execution. As institutions scale digital services, the reliability of information and payment systems, channel operations, and governance frameworks becomes increasingly important to public and institutional confidence. Our experience across information management, digital transformation, and enterprise payments enables us to support secure, large-scale financial ecosystems, with a clear commitment to building and leading these capabilities locally.”

Sri Lanka’s Digital Personal Data Protection framework raises expectations around how personal and sensitive information is secured and governed.