Sept 09, Colombo: Sri Lanka’s Central Bank says its monetary exchange rate policy has been consistent as it intervenes in both sides of the market to maintain stability while also allowing adequate flexibility.
Issuing a statement in response to the International Monetary Fund’s (IMF’s) suggestion that the Bank should restrict its intervention and allow more flexibility in rupee exchange rate, the Central Bank said today the Bank’s policy is appropriate and it will continue to follow the same policy.
“The Central Bank is of the view that its policy on exchange rate is appropriate in the circumstances and will continue to follow such prudent policy,” the monetary authority in the country said.
On Wednesday, at the end of its seventh review of the US$ 2.6 billion Stand-By Arrangement, the IMF said the non-borrowed reserves have steadily declined and suggested the Central Bank to limit its intervention and allow more exchange rate flexibility.
The IMF commended the significant macroeconomic achievements and the economic stability of Sri Lanka and predicted a 7.5 percent growth in economy for this year.
The CBSL pointed out that its gross official reserves have reached a historic US$ 8.1 billion, substantially above the desired level and sufficient to cover 5.8 months of imports.
Justifying its exchange rate policy, the Bank said so far during the year, the rupee has marginally appreciated against the US dollar and has depreciated against other major currencies such as Euro, Sterling Pound and Yen.
The Bank reported that during the last two months it had to intervene in the foreign exchange market as there were some pressures mainly to absorb the proceeds of the sovereign bond of US$ 1.0 billion and to ease some pressure attributable to significant increase in import demand particularly in the backdrop of increased oil.
The monetary authority expects significant inflows of foreign exchange in the near future from investments in various projects including in the areas of tourism, ports, and telecommunications, manufacturing and assembling industries as well as from the debt and equity market.
“Inflows to the government to finance various infrastructure projects are continuing. Foreign remittance inflows as well as inflows to the services account, which includes earnings from tourism, port and airport services, continue to be strong,” the Bank highlighted.
Noting that these developments along with the plans of several commercial banks to raise the Tier 2 capital will lead to substantial increases in foreign exchange liquidity in the market, the Bank said its policy on exchange rate is appropriate.