ECONOMYNEXT – Sri Lanka may see a surge of foreign inflows to finance an upcoming election which boost the rupee, but it was not certain, Central Bank Governor Arjuna Mahendran said.
He was responding to a question on a forecast made by Finance Minister Ravi Karunanayake almost two weeks ago that the rupee will appreciate to 130 to the US dollar in two weeks.
"I think the Honourable Minister of Finance may be knowing something that you don’t," he told reporters in Colombo Friday.
"I am sure he is expecting some large volumes of funds to come into the country. Particularly ahead of an election that is not an unusual expectation.
"Because as you know politicians have to spend a lot on the election campaign and presumably they will have a lots of overseas donors who will be sending money in the coming weeks."
If it happens the rupee may go up, helping with debt service costs, Mahendran said.
"I can’t personally or on behalf of the central bank vouchsafe that that will happen. But lets hope is does."
Sri Lanka’s rupee has been under pressure from rising state credit in particular which has been eating into excess liquidity generated from earlier inflows and generating imports over and above inflows.
Of late spooked foreign holders of bonds have also been selling out.