CBSL defends its recent guidance to the exchange rate

The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. As per the REER, the LKR is under a massive undervaluation. CBSL stated that, following the excessive depreciation, inflation accelerated significantly through imported prices. CBSL further says, 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.