The recent depreciation in the rupee against the US dollar is a repercussion stemming from actions of the authorities dating back to as far as January 2014 and not due to recent developments, a senior banking expert told The Nation Gain last week.

The expert’s observations were in contrast to several allegations from opposition legislators who claimed that mismanagement of finances by the present administration of the Central Bank had led to the sharp depreciation of the Rupee against the US Dollar in recent times.

The buying rate of the dollar on Wednesday (3) was recorded as Rs.133.65 while its selling rate on that day was recorded as Rs.137.01. During the period from end 2014 through 28 May 2015, the rupee had recorded a depreciation of 2.1 per cent against the US dollar. Reflecting the cross currency movements, the rupee also depreciated against the pound sterling by 0.8 per cent and the Indian rupee by 1.3 per cent during this period while appreciating against the euro by 9.1 per cent, the Japanese Yen by 1.5 per cent, Canadian dollar by 5.2 per cent and the Australian dollar by 4.6 per cent, the Central Bank said.

“The actual reason for the situation goes back to January 2014 where the country’s foreign reserves were depleting and were filled with borrowings. The Central Bank all the while had covered up the issue and now it has hit us pretty bad,” former Deputy Governor of the Central Bank W.A. Wijewardena told The Nation Gain.

Due to the present situation, economists last week called on the Government to formulate an economic blueprint for Sri Lanka’s long-term stability.

However, Deputy Governor, Dr. P.N. Weerasinghe told The Nation Gain that the situation had somewhat stabilized during the latter part of last week and the rupee was appreciating. He stated that the spot value of the rupee against the dollar had not seen much of a change. He also pointed out that there was money coming in since exporters had converted their dollars. “In addition, we have got the bond money and the flows coming in and therefore the situation is getting better at the moment,” he said.

Wijewardena in the meantime stated that Sri Lanka needed a long-term restructuring program that would focus on exports and also look to diversify its markets.

Experts had earlier pointed out that the lack of a clear roadmap and a long-term plan had resulted in a slide in the economy, which, in turn, had also created second thoughts on the minds of foreign investors.

“If Sri Lanka does not draw out a long-term foreign exchange plan, we would have very little hope as far as the economy is concerned,” Senior Lecturer of Economics at the University of Colombo, Dr. Sirimal Abeyratne told The Nation Gain last week.
“Sri Lanka can obtain short-term benefits through credit lines and sovereign bonds. But what is needed is a long-term plan for the country to be stable,” he added.

The Central Bank has throughout the years published a roadmap, giving an indication as to where the country would be heading each year. The Central Bank’s 2015 roadmap was unveiled in December last year.

The Government in response to such criticisms had stated that the establishment of political stability will enable the government to present a comprehensive policy package covering next five year period and beyond.

Dr. Weeransinghe pointed out that the Central Bank had, in fact, drawn out a three year macro-economic plan for Sri Lanka. “It has been mentioned in our annual report for 2014,” he added.

Meanwhile, Research Manager, First Capital Equities, Dimantha Mathew pointed out that the depreciation of the rupee was due to the increase in disposable income.

He stated that Sri Lanka had seen a drastic increase in disposable income owing to the concessions and salary increases provided at the interim budget, coupled with the reduction of energy and fuel prices.

“The increase in demand has resulted in the increase in imports, which means the money is going out. In addition, the people are either investing or spending the money,” he added.

He stated that the impact of the situation would be seen in the second half of the year if the Government failed to address the situation on time.

He stated that the Government needed to increase interest rates so that part of the disposable income could be put in fixed

Arthur Wamanan