No Hikes After Polls

The exchange rate (ER) will not be depreciated after the October 8 local government elections, Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal told this reporter.

That was in response to a question as to whether in order to get the balance US$ ($) 900 million under the IMF’s standby arrangement (SBA), CBSL would allow the rupee to depreciate after the elections. A depreciated rupee would make imports expensive (see connected articles found elsewhere on the Business pages and also page 19). In recent times CBSL has been defending the ER at the Rs. 110.10 (per $)* level despite pressure for it to depreciate. CBSL’s actions have been frowned upon by the IMF which feels that such an action would cause a dent on CBSL’s reserves.
“I have $ eight billion worth of reserves to play around with,” Cabraal said. But when this reporter reminded Cabraal that after last year’s Presidential and Parliamentary elections that the Government of Sri Lanka (GoSL) imposed import taxes on certain essential food commodities while at the same time rationalized BoI tax holidays (see also page 22 of last week’s edition), and almost immediately afterwards received an IMF tranche under the aforesaid SBA (which then too was seemingly withheld due to GoSL not meeting certain IMF obligations), Cabraal, while not answering the former question however said that despite the rationalisation of BoI tax holidays, already $ 400 million worth of investments have had been received and GoSL was in line to receive the targeted $ one billion investment mark for the year.
“Such investments need not be FDI,” said Cabraal, those may even be domestic investments which will also help to achieve the set 8.5% growth rate for the year,” he said. The island may not have the capacity to receive investments which go beyond the $ one billion mark, said Cabraal.
He further said that GoSL is engaging the Tamilian diaspora successfully, they too would be making investments, he said. Except for a few bad eggs, the rest of the diaspora is receptive to GoSL’s overtures, said Cabraal.
Meanwhile Assistant CBSL Governor B. D. W. A. Silva said that generally the ER undergoes pressure to depreciate when GoSL has to settle oil bills. Silva is due to be promoted as a deputy governor on Tuesday.
The pressure on the ER to depreciate which was there until recently, has, since of late, dissipated, only to return last week!
* It was depreciated by 20 Sri Lanka cents to Rs. 110.30 by Thursday, in two tranches of Sri Lanka cents 10 each on Wednesday and Thursday respectively.