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Sri Lanka exporters should convert, rupee worth 185 to dollar: Minister Cabraal

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by Imesh Ranasinghe

Sri Lanka’s rupee should be around 185 to the US dollar, State Minister for Money and Capital Markets Nivard Cabraal has said urging exporters to convert dollar inflows without holding them back.

“I think the rupee should be around 185 to the US dollar depending on the macroeconomic factors,” Minister Cabraal said at a conference last week.

Cabraal a former central bank Governor kept the rupee stable for several years, though after a fall in 2012, it was not allowed to appreciate when credit fell in 2013 and the central bank bought billions of dollars for its reserves, for reasons that are not clear.

Sri Lanka’s rupee fell sharply in over January 2021 after the central bank printed money and brought rupee interest rates below local dollar yields over the past year amid a credit downgrade which drove up dollar bond yields, making forward premiums negative and incentivizing importers to cover forward.

As exporters also unwilling to sell forward at a discount, banks bought dollars in the spot and near term market, using the printed money from the central which are sloshing around as excess liquidity to provide forward cover to importers, putting pressure on exchange rate.

Some exporters loaned dollars and were borrowing rupees due to the inverted interest rates.

Due to unprecedented levels of excess liquidity in the overnight market interest rates did not move up in a correction – which would have raised the forward premium – despite interventions by the central bank which reduced some excess liquidity.

Excess liquidity fell from 266 billion rupees at the beginning of the year to around 120 billion rupees amid dollar losses to interventions and debt repayments.

The central bank then closed the forward market, preventing banks from giving forward cover.

“So the central bank took necessary actions about that,” Cabraal said. “And because of those actions taken by the central bank in the past few days, we once again saw the rupee being appreciated.”

Minister Cabraal asked exporters to convert their dollars as soon they receive them, as they may face losses by listening to fear mongers.

“We should keep in mind that it is a tough period for the world, so in such a tough period when we are going forward we all should go forward together,” he said.

“It’s like going in a boat, when that boat is going in a rough sea we should not shake the boat, If one or two tries to shake the boat everyone in the boat will have to face the consequences.”

Cabraal said if some are shaking the boat in that manner will, they will have to take necessary steps in order to stop them from shaking and making the boat unstable,

“It is what the central bank has done now,” he said. “There are other things the central bank can do but our opinion is that it is not necessary to do them now.”

Analysts have blamed a so-called ‘flexible exchange rate’ where a pegged exchange rate is suddenly turned into a floating exchange rate as money printing puts pressure triggering panic and uncertainty forcing importers settle bills immediately taking more credit and exporters to watch and wait.

There have been calls for central bank reform to stop the instability.

The rupee has appreciated in recent days from around 196 to 191 to the US dollar.

Meanwhile Cabraal said in 2014, when Mahinda Rajapaksa administration had left office, the US dollar was 131.5 rupees to the dollar.

At the time the only accusations from the economic experts in the opposition at that time were that the Central Bank is controlling the rupee as it was stable for years and the rupee should be allowed to float.

“But after they came into power the rupee depreciated for 5 years like never before with an annual average depreciation of 6.7 percent,” he said.

There were no global crisis or any other problem during those five years but the rupee depreciated to 181.63 against the US dollar.

“The rupee only depreciated by 2.6 percent in 2020, it is a big achievement when considering the tough period we are going through, meanwhile, the central bank was able to collect 282 million dollar to buttress its reserves,” Cabraal.

Other analysts had also blamed the last administration for giving the central bank independence to target a real effective exchange rate on contested claims that the rupee was more ‘overvalued’ than East Asia while printing money.

The resulting currency crisis then created consumption shocks that lowered growth.

More money was then printed on the basis that there was an output gap, triggering another currency crisis and destroying the economic credential of the United National Party, which was the largest partner of the then ruling coalition.

Analysts had warned of the outcome earlier.

Analysts and economists are now warning that the current monetary framework involving so-called modern monetary theory, with high levels of excess liquidity would also have dangerous consequences as soon as economic activity picks up.

While tourism receipts fell, with no dollar income for tourist sector workers and hotel owners to spend, imports will fall by the same amount, unless money was printed, and credit picked up.

There have been steady losses in foreign reserves, mostly from the financial account despite weak credit lowering imports. (ECONOMYNEXT)



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SL gets Rs 452 mn for saving ill-fated tanker: Rs. 3.4 bn asked for

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By Ifham Nizam and Rathindra Kuruwita

The Marine Enviro-nment Protection Authority (MEPA) yesterday received Rs. 452 million from London for having saved MT New Diamond, a super oil tanker that caught fire in the Sri Lanka’s territorial waters last year.

MEPA General Manager, Dr. P. B. Terney Pradeep Kumara told The Island that Rs. 442 million had come for the services rendered by the Sri Lanka Navy, MEPA and Rs. 10 million by way of a fine imposed on the Ship’s Captain.

However, Sri Lanka has to receive a much larger amount for the damage caused to the marine environment, Dr. Kumara said. Following the incident, Sri Lankan authorities filed charges against the Captain of the ill-fated vessel and made a claim for $2.4 million from the ship’s owners for the firefighting and pollution prevention efforts.

Twenty experts from the Universities of Moratuwa, Ruhuna and Sri Jayewardenepura submitted their recommendations as regards the damage to the environment, to the Attorney General. Based on the report, the Attorney General’s Department had asked for Rs. 3.4 billion (around USD 19 million) as compensation for environmental damage, the Coordinating Officer for the Attorney General, state counsel Nishara Jayaratne said.

Soon they would have discussions with the lawyers of the shipping agent concerned on compensation for environmental damage caused, she said.

Dr. Kumara, who is the former Head of the Department of Oceanography/Marine Geology of the Ruhuna University, said that the incident had caused deaths among marine species due to spillage of some toxic fuel from the vessel.

The MT New Diamond crude oil tanker was transporting 270,000 MT oil from the port of Meena Al Ahmadi in Kuwait to the Port of Paradip in India when a fire broke out in its engine room as the vessel was passing the eastern seas of Sri Lanka on September 3, 2020.

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PSC on gender equality meets for the first time

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State Minister, Fernandopulle flanked by two other PSC members

Special attention on microfinance

The Parliamentary Select Committee appointed to further gender equality, to investigate instances of discrimination against women and to present recommendations to Parliament, focused on microfinance loans that are currently affecting a large number of women in Sri Lanka, when they met for the first time in Parliament recently.

The meeting was chaired by the State Minister of Primary Health Care, Epidemics and COVID-19 Disease Control Dr. Sudarshini Fernandopulle.

It was also revealed that the Cabinet had approved the re-establishment of an institution to regulate Microfinance loans in Sri Lanka.

The MPs also discussed the role of the Select Committee. They decided that the primary role of the Committee should be to investigate women’s grievances and all forms of discrimination based on gender, including workplace violence.

Another task before this committee is to examine and review laws that can be used to enhance gender equality, encourage relevant ministries and authorities to formulate plans to further gender equality and to allocate financial resources.

The Committee will also try to encourage greater women’s representation in decision-making bodies at the national and provincial levels as well as in government, civil society and the private sector.

MPs Rohini Kaviratne, (Dr.) Harini Amarasuriya, M. Udayakumar, S. Sritharan, Rohana Bandara and the Secretary to the Committee, Deputy Secretary General and Chief of Staff of the Parliament Kushani Rohanadheera were also present at the meeting.

 

 

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A/L Examination from October 04 to 30

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The 2021 GCE Advanced Level examination would be held from October 4 to 30, Education Minister Prof. G.L. Peiris said yesterday addressing the media at his Ministry.

Minister Peiris said the examination was earlier scheduled to be held in August.

The Grade 5 scholarship examination would be held on October 03 and the 2021 GCE Ordinary Level (O/L) examination in the last week of January 2022, the Minister said.

“Usually, schools are open for academic activities for around 200 days a year. But in 2020, schools were open for about 150 days. It was around 130 days in the Western Province. We were not able to fill this gap with online classes due to lack of internet facilities in many parts of the country,” he said.

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