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Tuesday February 27th, 2024

Sri Lanka keen on rupee at 200 to US dollar, using influence on market: CB

ECONOMYNEXT – Sri Lanka is keen to keep the exchange rate at the current level of 200 to the US dollar and is using pressure to influence the market, while simultaneously attracting inflows and implementing fiscal measures to shore up the currency, Central Bank Governor W D Lakshman said.

“We are very keen (vi-shar-ler unanduwak) to keep it at that level or at a higher level,” Governor Lakshman told reporters at an online briefing.

“That is to say to keep the rate at 200 or below. We expect to raise (iher-ler-nung-var ganeemer) the value of the rupee.”

“Our expectation is that we can do it. At the moment it is through the certain influences to pressure market (baler-paam idiripath-kireemen) that we are keeping the exchange ate at the current level.”

Sri Lanka’s rupee is now at around 200 to the US dollar with banks barred from selling the currency above 203 to the customers and outright interbank transactions barred from being made above 200.

Sri Lanka’s rupee has come under pressure from extraordinary money printing through 2020 to boost growth and keep down Treasury bill yields by turning legacy debt into liquidity.

However analysts have traced the origins current currency crisis to August 2019, when ‘output targeting’ began with bill and bond purchases and the central bank lost the ability to mop up reserves.

Sri Lanka has had forex shortages since a money printing soft-peg with Keynesian counter-cyclical powers based on a model used in some Latin American countries was set up in 1950 abolishing non-discretionary East Asia style currency board.

Analysts and classical economists have called for a currency board to be re-established to prevent chronic monetary instability.

There have also been warnings that the use of central bank swaps coupled with continued liquidity injections may lead to negative foreign assets in the monetary authority which will lead to involuntary market dollarization as had happened to several Latin American and Asian countries where Fed experts set up central banks with similar monetary laws.

Sri Lanka’s Colombo Port City is fully protected from the central bank’s discretionary policy through multiple currency dollarization, the most free market monetary system now imaginable as free banking no longer exists.

Meanwhile Governor Lakshman said the central bank was taking measures and the government was also taking measures to stabilize the exchange rate.

Since the statement, the government has raised fuel prices.

Late in 2020 the central bank said it wanted the rupee at 185 to the US dollar.

“Actually when we did the 185 forecast – or rather our policy aim was disclosed – we actually had reasonable expectations that the exchange rate could be kept at that level,” Governor Lakshman explained.

“Those conditions have changed to a most extend in the recent past.”

He said inflows and outflows of foreign exchange were key factors in determining the foreign exchange level.

“In the recent past, through various means, we made efforts (mahansi guth-thar) now also we are making efforts to increase the inflows to the country,” he said.

“Depending on the success of those and the success of limiting external flows we can control the exchange rate at the current level or protect it (rakkker ga-nee-mer-ter) to a better level.”

Governor Lakshman warned that Sri Lanka’s exchange rate was not a variable to about which exact predictions can be made.

To fix a currency against another (hard peg or credibly peg), overnight rates have to be floated and money printing abandoned.

Due to money printing and maturity mis-matches of dollar loans extended, especially state-banks to SOEs in particular Sri Lanka’s domestic dollar yields have outpaced rupee yields, leading forward exchange rates trading at a discount in the swap market, analysts have said. (Colombo/June16/2021)

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Sri Lanka president appoints Supreme Court-faulted official as police chief after CC clearance

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe appointed Deshbandu Tennakoon as the 36th Inspector General of Police (IGP) of the country after the Constitutional Council (CC) cleared the official who along with three other police officers were asked by the Supreme Court to compensate 2 million rupees in a fundamental rights case last year.

“President Ranil Wickremesinghe has appointed Deshbandu Tennakoon as the IGP in accordance with the provisions of the Constitution,” the President’s Media Division (PMD) said.

The island nation’s Supreme Court on December 14 ordered Tennakoon when he was the Acting IGP and three other officials to pay a compensation of 500,000 rupees each for the violation of the fundamental rights of an individual.

The Supreme Court also instructed the Police Commission to take disciplinary action against the said Police officers after it considered the petition filed by W. Ranjith Sumangala who had accused the Police officers of violating his fundamental rights during his detention at Mirihana Police Station in 2011.

The Supreme Court held that the four police officers violated the fundamental rights of the petitioner by his illegal arrest, detention and subjection to torture at the Mirihana Police Station, which was under the supervision of Tennakoon at the time of the arrest.

President’s Secretary Saman Ekanayake presented the official appointment letter to Tennakoon on Monday (26) at the Presidential Secretariat.

When Tennakoon was asked over if the Supreme Court decision would have an impact on his appointment as the IGP last week, he declined to comment, saying that it was a Supreme Court matter and he does not want to say anything about it.

Tennakoon was also criticized by Colombo Archbishop Cardinal Malcolm Ranjith when he was appointed as the Acting IGP citing allegations against him related to security lapses leading up to the Easter Sunday attacks which killed at least 269 in April 2019.

However, Tennakoon rejected the allegations. (Colombo/Feb 26/2024)

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No water tariff hike in Sri Lanka this year: Minister

Millennium Challenge Corporation Photo.

ECONOMYNEXT – Sri Lanka’s planned water tariff formula is ready, and the government will implement it this year only if the formula’s tariff is lower than the current price, Water Supply Minister Jeevan Thondaman said.

President Ranil Wickremesinghe’s government has been implementing IMF-led pricing policies on utilities and the Water Supply Ministry has already come up with a formula.

“There is a water tariff formula in place right now and we are waiting for it to be drafted and seek approval from the cabinet,” Thondaman told reporters at a media briefing in Colombo on Monday.

“Once this water tariff formula is in place, there will be an annual revision with an option of biannual review.

The formula has been developed with the help of the Asian Development Bank. The formula includes electricity and exchange rate among many others as components like the fuel formula.

The National Water Supply and Drainage Board (NWS&DB) increased the water tariff in August 2023, claiming that the operating cost had been increased owing to high interest payment for bank loans and increased electricity prices.

The last year revision saw the consumers paying 30-50 percent increase from the existing water bill.

Minister Thondaman said he will implement the new formula this year only if there is a reduction.

TARIFF CUT WILL BE IMPLEMENTED 

“We will have to wait to see what the formula is. If the formula shows us there needs to be a reduction in the water tariff, we can implement it. But if there is an increase, why should we burden the people when we are on a road to recovery?” he said.

He said a group of experts including University Professors are working on the formula and the numbers.

“Once they come with the number, we will have to take a decision on whether we are going to impose on the people or not,” he said.

“We have already spoken to the Asian Development Bank and informed them we have established the formula. But according to the ADB requirement of this policy-based loan, the implementation period is only in 2025.”

“But right now, you want to take the approval for the formula for sustainability.”

The Energy Ministry is considering a drastic slash in electricity tariff soon. Thondaman said the exact numbers will be decided on after the finalized electricity tariff.

However, he said that as per the formula, there has to be a up to 10 percent increase in the water tariff as of now.

“Given the current formula set up, there must be around a 9-10 percent increase. It was actually at 14 percent. What we have done is since it is at 14 percent, we also did a calculation to see how we can do a cost cutting,” he said.

“So, despite our cost cutting measures, there will be an increase of 9 or 10 percent. But we will not be imposing it as of now because this year is meant to be policy sector reforms. Next year is meant to be the implementation.”

“As per August 2023 water tariff hike, we are able to come close to sustainable. So right now, there is no issue in the water sector. But a formula eventually needs to be established.” (Colombo/Feb 26/2024)

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Sri Lanka rupee closes at 310.80/311.00 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.80/311.00 to the US dollar Monday, from 310.95/311.05 on Thursday, dealers said.

Bond yields were down.

A bond maturing on 01.02.2026 closed stable at 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.80/90 percent down from 11.90/12.05 percent.

A bond maturing on 15.03.2028 closed at 12.00/12.15 percent down from 12.10/25 percent.

A bond maturing on 15.07.2029 closed at 12.20/70 percent from 12.20/95 percent.

A bond maturing on 15.05.2030 closed at 12.30/70 percent down from 12.40/95 percent.

A bond maturing on 15.05.2031 closed at 12.60/80 percent from 12.45/13.00 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent from 12.50/13.30 percent. (Colombo/Feb26/2024)

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