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| Sunday, 13 June 2004 |
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| News Business Features Editorial
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Rupee weaken temporary by Gamini Warusamana External as well as internal factors have resulted in the Sri Lankan Rupee weakening continuously during the week. Among the factors are US Federal Reserves bank Chairman Allen Greespans announcement of a possible increase of US interest rates, the high price of oil as well as the local political situation Economist Prof. Jagath Wickramasinghe said. US Federal Reserves Bank Chairman Allen Greenspan's June 7 statement announcing a possible increase of US interest rates has lead to increased capital flows into the USA strengthening the Dollar. The second factor is the high price of oil. Last week crude oil prices in the World Market reached its highest since the Gulf war in 1991. Crude oil prices increased to recorded highs of 42.45 a barrel early in the week, after the militants attacked the Saudi city of Khobar. Since oil transactions are done through the US Dollar, the demand for the dollar increased which resulted in the rupee depreciating. The third factor is related to local politics Prof. Wickramasinghe said. Before the UPFA government came to power there were rumours that the new government would control imports while increasing import tariffs. Therefore importers may have imported large stocks of goods. This may also be a cause for uncertainty in the forex market. Under the floating exchange system, changes in the value of the currency are generated by market forces (supply and demand in the forex market). It was January 2001 that Sri Lanka introduced the floating exchange rate. There are risks of depreciation which could have complicated effects on the national economy which can cause increase in import prices and stimulate greater demand for local products while it can aggravate inflation. It will also result in increased interest rates at the cost of lower economic growth. However, Prof. Wickramasinghe says this will be a temporary phenomena. Oil prices dropped from a recorded highest after OPEC decided to increase its output on June 3 and expects to decline further. The economic policy of the UPFA government is also clear and there is clear- there are no import control or tariff hikes.The Government has won over the confidence of the business community. Therefore, in the near future, the rupee will stabilise Prof. Wickremasinghe said. The Sri Lankan Rupee is weakening continuously while the value of the US Dollar exceeded Rs.100 on Tuesday. According to the Central Bank of Sri Lanka (CBSL), Telegraphic transfers (selling rate) of the US Dollar was Rs. 100.13 on Tuesday as against Rs.99.91 on Monday. |
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