‘Time to let rupee depreciate’

This is the ideal time to let Sri Lankan rupee to depreciate further said, Dr. Sirimal Aberathne of the Department of Economics of the University of Colombo. He said that since the commodity prices are declining in the international market the inflationary pressure from imported commodities is minimum at this moment.

The exchange rate of a country should be steady and flexible which means the Central Bank should not unnecessarily intervene. However, in Sri Lanka this is not so since more than a decade. In Sri Lanka the tools we use to maintain the Balance of Payment (BOP) are foreign remittance and foreign borrowing and not increase our export revenue. Therefore CB intervened and maintain over valued exchange rate, he said.

According to the Country Assessment Strategy (CAS) of the World Bank the real effective exchange rate of the rupee has appreciated by 25 per cent since 2000 export sector of the country faced serious challenges.

The global financial crisis has worsened the situation and has compelled us to let the rupee to depreciate. Many countries in the Euro zone which are our trading partners and our competitor countries such as India, Pakistan, South Korea have largely devalued their currencies aggravating our export sector, Dr.Aberathne said.

From mid 2008, India has devalued rupee by 30 per cent and Euro zone it is over 20 per cent. However, Sri Lankan rupee has depreciated only by 5 per cent, which is not sufficient.