Urgent intervention vital to stabilise falling rupee - Economists | Sunday Observer

Urgent intervention vital to stabilise falling rupee - Economists

18 April, 2021

Urging swift action by the monetary authorities to arrest the weakening trend of the Sri Lankan Rupee economists and financial analysts said unless speedy steps are taken the rupee will plunge further making debt repayment and servicing imports impossible.

Financial experts said the US Dollar strengthening is not an excuse to get away from the issue. Measures to spur trade, attracting export oriented foreign direct investments and promoting the destination for tourism focusing on new markets are key to stabilise the falling currency.

The Sri Lankan rupee has depreciated by around 7.8 percent so far this year from Rs. 189 at the start of the year to Rs. 204 last week. The selling price of a US Dollar on Thursday was Rs. 204.62 while the buying rate of a US Dollar currently stood at Rs 199.80. However, when asked  a senior official of the Central Bank said market conditions had led to the current stand of the Rupee.

“We have allowed market conditions to prevail  and hopefully the currency would stabilise with revival in exports and tourism by the end of the year,” he said.

According to Central Bank data  merchandise trade deficit continued to narrow during January 2021, while preliminary data for February 2021 showed a further reduction in the trade deficit, driven by a larger contraction in expenditure on imports over earnings from exports.

Workers’ remittances continued to record a healthy growth thus far in 2021 and this momentum is expected to continue in the remainder of the year. The tourism sector is expected to recover gradually with the opening of the borders along with Economic Research Department 08.04.2021 2 the successful rollout of vaccinations locally and globally.

Meanwhile, the Central Bank and the Government continue to engage with investment and lending partners to secure foreign financing and remain committed to honouring foreign currency debt service obligations on time.

Recently, the Central Bank entered into a bilateral currency swap arrangement with the People’s Bank of China (PBOC) amounting to CNY 10 billion (equivalent to approximately US dollars 1.5 billion). The bank noted that although the Sri Lankan rupee experienced some volatility recently, the continuation of the existing restrictions on non-essential imports and certain foreign exchange outflows, among others, is expected to help cushion pressures in the domestic foreign exchange market. Gross official reserves were estimated at US dollars 4.1 billion (excluding the swap facility with the PBOC), with an import cover of 3 months, at end March 2021.

As per the GDP estimates published by the Department of Census and Statistics (DCS), the contraction of the Sri Lankan economy at 3.6 per cent in 2020 was lower than initial projections. Despite the second wave of COVID-19 in the country, the Sri Lankan economy grew by 1.3 per cent in the last quarter of 2020 from a year earlier.

However, the economy is expected to rebound this year with a growth rate of around 5-6 percent according to the Central Bank.