The Central Bank is hopeful that the depreciation of the rupee will stabilize soon following a number of measures taken by the Central Bank and the government while the economic growth is expected to grow at a positive note.
In a bid to stabilize the Sri Lanka rupee the Central Bank bought four million dollars from forex markets on Monday and now the markets have begun to stabilize, Central Bank officials said yesterday.
In contrast to Sri Lankan rupee the Indian, Philippines and Indonesian currencies are also facing major depreciations against the dollar, Governor, Central Bank, Indrajit Coomaraswamy told a media conference on Monetary Policy Review yesterday. The substantial surge in import expenditure was driven by the growth in imports of fuel, gold and personal motor vehicles.
In addition to the Central Bank intervention to curtail disorderly adjustment in the exchange rate during the first few weeks of September 2018, both the Central Bank and the government introduced a raft of policy measures including margin deposit requirements for letters of credit opened for the importation of personal motor vehicles, cash margins on selected non-essential consumer goods imports and the suspension of concessionary vehicle permits for a limited period.
“These measures are expected to ease the excessive demand for foreign currency and hence the pressure in the domestic foreign exchange market as already observed in the stabilising exchange rate.”
“Emergency controls on some imports are temporary, and could be taken away or added to in the future.”
The Governor said that some are trying to say that the rupee depreciation has resulted in the crash of the economy and this is not at all a reality.
Coomaraswamy said that the agriculture sector too has picked up and also other dynamics are falling in to place and the Sri Lankan economy which grew at 3.8% in the first half will pass the 4% mark in the second half and pick up further,” he added.
With appropriate policy adjustments, inflation is expected to remain within the 4-6 per cent target range over the medium term.
Governor also said that the Monetary Board at its meeting held on October yesterday, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 7.25 per cent and 8.50 per cent, respectively.
The Board arrived at the above decision after carefully considering current and expected developments in the domestic and global economy, with the aim of stabilising inflation at mid-single digit levels in the medium term to support growth.
Deputy Central Bank Governor Nandalal Weerasinghe said that Indonesia has used up over USD 13 billion in foreign-currency reserves in the first eight months of t 2018 but have seen the currency losing almost 10% highlighting that such measures may not always avert a currency slide.
“The U.S Federal Reserve has increased interest rates 8 times since December 2015 bringing to a gradual close a period of easy money flowing into emerging and frontier markets like Sri Lanka. Most of the other Central Banks globally have signalled a similar direction in terms of monetary policy.”
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