Whither the Rupee? Whither the Rupee?
Jun 08, 2018

Depreciation of the Rupee – due to dissimilar economic policies? Featured

The Sri Lankan Rupee yesterday (07) had its worst ever depreciation against the US dollar, falling to Rs. 160 per dollar.

Last February, former deputy governor of the Central Bank Dr. W.A. Wijewardena, speaking to BBC Sinhala Service, predicted that the Rupee could depreciate to between Rs. 160 and Rs. 165 by the end of this year.

Now, That situation is likely sooner.

Explaining the reasons, Dr. Wijewardena said the country thus had to pay for the dissimilar economic policies.

It is important the government, having two key affiliates, follows a single economic policy.

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Essential to follow a single economic policy – Dr. W.A. Wijewardena

The UNP is having a V 2025, while the National Economic Council headed by the president has launched a different economic policy, he noted.

However, nobody knows if the two policies match each other or not, he said.

The ex-deputy governor went onto say that the structural weaknesses in the economy were resulting in the continuous depreciation of the Rupee.

From 2008 onward, instead of focusing on the exports sector, policies were formulated to build an indigenous economy, he said.

Exports would have increased in dollars terms, but taken as a ratio of the GDP, it declined from 22 per cent to around 12 pc by 2014-15.

The export income (11 billion USD) is now on the decline, while import expenditure has gone up steeply to around 20 billion USD.

This year, the trade deficit could be estimated at around 10 billion USD, said Dr. Wijewardena.

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Exports in dollar terms during 2014-16 declined

That gap has to be bridged mainly from foreign remittances by expatriate workers, but that income fluctuates, he noted.

It would be dangerous for the Central Bank to release its reserves, comprising mainly of foreign borrowings, in order to meet that requirement, he warned.

Therefore, it should get involved in the market very carefully and wisely, making the Rupee to stabilize.

But, that mediation did not happen last week, and the Rupee depreciated, he said.

Immediate remedial measures

The remedial measures he recommends are a change in economic policies for quick results, identifying the export segments that needs to be improved in the next 18 months and identifying the services segments that needs to be improved in the next 24 months.

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