Stern action against currency manipulators | Sunday Observer

Stern action against currency manipulators

13 May, 2018

The Central Bank on Friday vowed to take strong action against manipulators in the foreign exchange market given that the recent sharp depreciation of the Rupee against the US Dollar in the last two weeks was beyond fundamentals.

Governor of the Central Bank, Dr. Indrajit Coomaraswamy said, the pressure of the Rupee is not aligned to the underlying fundamentals.

The island’s reserves are at

historically high levels while the Real Effective Exchange Rate Index is at 100. “So we don’t see any reason why there should be pressure on the currency.

We are studying carefully why there was this extra pressure that came through the FX market in the past 10 days to two weeks.

“We will study transaction by transaction to see what has happened, look at the behaviour of market participants and take strong action,” Dr. Coomaraswamy asserted.

On the other hand, the Governor said the impact of the depreciation of the Rupee has both positive and negative implications. On the fiscal front, it is a positive given the current structure of Sri Lanka’s receipts and payments.

“Also it has a positive impact on the Balance of Payments as it incentivises exports and discourages imports. But where there is a challenge in currency depreciation is that it has an impact on the cost of living and inflation especially because we have a very high import component in our consumption basket,” he said.

Meanwhile, Dr. Coomaraswamy said that despite the expected uptick in inflation due to the recent adjustments on the administered prices of LP Gas, fuel and milk powder, inflation is not expected to go beyond the 4% to 6% band.

“It may challenge the upper bound of the band around July but we don’t anticipate that it will go above it for very long and will start trending down for the year,” the Governor highlighted.