Sri Lanka rupee volatility from flexible exchange rate policy: central bank
Apr 26, 2018 18:32 PM GMT+0530 | 0 Comment(s)
Central Bank intervention in the domestic foreign exchange market and the exchange rate Source: Central Bank
ECONOMYNEXT – Recent volatility of Sri Lanka’s rupee against the US dollar stems from a flexible exchange rate policy followed by the central bank, where it was deliberately refraining from intervening, its deputy governor Nandalal Weerasinghe said.
The central bank is allowing the foreign exchange market to determine the exchange rate and was not intervening, he said during the presentation of the bank’s annual report for 2017 Thursday.
"There is more volatility in exchange rate than before," Weerasinghe said.
"This is a sign of a market determined exchange rate. If we think it is too much movement we can intervene."
Sri Lanka had collected about 9.8 billion US dollars in reserves by April after a 2.5 billion US dollar bond sale, which was almost the highest in is history.
Weerasinghe said despite having 10 billion US dollars in reserves the central bank was holding back and was also looking at other movements.
He said the Indian rupee, the Indonesian rupiah, Philippines peso and the Australian dollar have also weakened of late.
Analysts had previously warned that the Philippines central bank set up under US pressure by the same architect had bankrupted itself, had some of the worst monetary records in East Asia, with permanently depreciating peg that generate labour exports to the Middle East and better managed East Asian nations.
Over the last year, the Philippines and Indonesian currencies have diverged from the better managed East Asian central banks which produce currencies such as the Singapore dollar, Malaysian Ringgit, New Taiwan dollar and the Korean won.
India is also bad benchmark for monetary policy, analysts have waned. Australia had a true independent floating rate with and exchange rate consistent with its monetary policy, which does not depreciate over the longer term. (Colombo/Apri26/2018)