No devaluation of rupee

The export sector gave up hopes of devaluation of the rupee, that they demanded to meet the challenges faced by the industry under the present global economic crisis.

The Central Bank (CB) ruled out devaluation of the rupee and the Governor Ajith Nivard Cabraal said that the CB target is long term stability of the rupee. He also pointed out that the devaluation of the rupee demanded by the export industries would increase foreign debts of the country by over Rs. 200 billion.

At the same time by opening treasury bills and bond market for Sri Lankan diaspora and migrant workers the CB signalled that the rupee will be stable in the future. CB launched this as a measure to restore the deteriorating foreign reserve position. The CB assured the investors that the rupee will be stable and said that during the last three years the Sri Lankan rupee has depreciated only by 3.4 per cent.

Rohan Masakorala, the Secretary General of the Joint Apparel Association Forum (JAAF) said that the reason the Central Bank is reluctant to devalue the rupee is to attract short term foreign investments.

In 2006 the US$ was at Rs. 114. After the relaxation of the capital account and receiving short term loans the rupee appreciated and US$ reached Rs.106.

To maintain this CB sold our foreign reserves and exporters lost Rs.7-8 per US$. With the global financial crisis the investors pulled the capital back in December and within two months the rupee depreciated by 5 per cent.

This is a sudden depreciation and nobody expected it.

If the CB allowed normal depreciation, today the US$ should be above Rs. 120 and the US$ should be at least Rs. 120 for export industries to face the present crisis. According to CB statistics, the real effective exchange rate of US$ is Rs. 140, Masakorala said.

Masakorala rejected CB arguments against the depreciation of the rupee. Many countries have depreciated their currencies.

(GW)