Sri Lanka rupee ‘fairly valued’: CB governor

ECONOMYNEXT – Sri Lanka’s rupee is fairly valued at the moment, but the Central Bank was watching how currencies of competitor countries change to determine the rate, Central Bank Governor Arjuna Mahendran said.

The currency this year has held almost steady against the US dollar after weakening 9 percent in 2015, he said.

“I think we are fairly valued. But the external environment is important,” he told a forum organised by the Shippers’ Academy Colombo.

Mahendran noted that the Malaysian ringgit fell 18 percent against the dollar last year, while the Indonesian rupiah had also weakened.

“So we can’t stand still with all these trade competitors depreciating their currencies, particularly when the dollar gets stronger.”

The Central Bank would have to “respond” if the dollar strengthens in response to a hike in US interest rates, Mahendran said.

Sri Lanka followed a strong ‘beggar my labour’ policy, backed by loose monetary policy and large scale monetization of debt since a central bank was created in 1951, generating poverty, capital destruction and labour unrest, and export of labour to the Middle East.

The Central Bank generated its latest balance of payments crisis in 2015 rejecting real bids at Treasury bill auctions and repaying them with printed money, driving credit and imports to unstainable levels, losing forex reserves and scaring foreign bond investors away.

Over the past month, Treasury bill auctions have been largely successful and the Central Bank has ceased putting major pressure on the rupee.

There have been calls for the Central Bank to be abolished and a currency board recreated to stop the agency’s tendency to generate monetary instability.
 

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