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)
DG Information ignorant of basic election laws and regulations: ECSL
by PRIYAN DE SILVA
The Election Commission (EC) has expressed its disappointment at controversial statements made by some public officials about elections. It says some top government official, including the Director General of Government Information, are not familiar with the basic election laws and regulations laid down in the Constitution.
The EC says it may be due to his ignorance that the Director General of Government Information has issued the Special News Release, on 29 January, claiming that ‘the gazette notification, with the signatures of the Chairman, and other members of the Election Commission, required for the commencement of the Local Government Election process, has not yet been sent to the Government Press for printing’. The EC has said such notices have to be signed and sent by the relevant Returning Officers in accordance with section 38 of the Local Authorities Election (Amendment Act) No 16 of 2017, and not by the members of the EC.
The EC has confirmed that the notices from the Returning Officers were sent to the Government Press on Monday (30).
The EC’s Media release also points out that the DGI may be unaware that Article 104GG of the Constitution states that if any public official refuses or fails without a reasonable cause to comply with the Commission he or she has committed an offence.
Article 104GG of the Constitution says: (1) Any public officer, any employee of any public corporation, business or other undertaking vested in the Government under any other written law and any company registered or deemed to be registered under the Companies Act, No. 7 of 2007, in which the Government or any public corporation or local authority holds fifty percent or more of the shares of that company, who – (a) refuses or fails without a reasonable cause to cooperate with the Commission, to secure the enforcement of any law relating to the holding of an election or the conduct of a Referendum; or (b) fails without a reasonable cause to comply with any directions or guidelines issued by the Commission under sub-paragraph (a) of paragraph (4) or sub-paragraph (a) of paragraph (5), respectively, of Article 104B, shall be guilty of an offense and shall on conviction be liable to a fine not exceeding one hundred thousand rupees or to imprisonment for a term not exceeding three years or to both such fine and imprisonment.”
AKD says no improvement at Sapugaskanda oil refinery since it went into production in 1969
The capacity of the Sapugaskanda Oil Refinery (SOR) has not increased since it was established in 1969, National People’s Power (NPP) leader Anura Kumara Dissanayake says.
Speaking at a public rally recently he that in 1969, the SOR used the most advanced technology available at the time.
“CPC started construction in 1968 and SOR started operations, refining oil, on August 5th, 1969. During that time, the CPC could refine 50,000 MT of crude oil. 55 years later, the capacity remains the same. In 1969, the CPC started with the most advanced technology available at the time. Technology has improved now. We are still refining oil with 1969 technology,” he said.
Dissanayake said that Sri Lanka built a fertiliser factory to use the byproducts of the refinery and, in 1982, a newspaper reported that 5000 MT of urea, produced by that factory, was exported to Pakistan. Today, that factory is closed.
“The CPC also had a nylon factory, as a subsidiary. We built our own nylon thread fish nets. By-products of the refinery were used as pesticides and insecticides for our pineapple and flower production. Those factories were closed, too. We had a candle industry from the by-products, we produced lubricant oil. It was sold to American Caltex. Refinery produced fuel for airplanes. It has the capacity to sell USD 1.4 million worth airplane fuel per day. We can buy crude oil, refine, and sell to ships. These are opportunities we must use to earn foreign currency. Recently this section of the CPC was privatized,” he said.
The ruling class has failed to secure even the most important assets, he said. Agriculture, land, gems, ilmenite, our natural resources, so will these rulers protect what is left, he asked.
“They have absolutely no plan to build this country. Selling our resources, closing down factories and selling valuable machinery is what they know. Every government has taken part in the destruction of the refinery. This is why we need a change in the economy. We need to transform our economy. Only NPP can do that,” he said.
The NPP leader said that the existing constitution concentrates too much power in the hands of the executive president. Sri Lanka has had this executive presidential system for 40 years and executive power was used against the people, repressing them.
“Our economy was destroyed. It has done no good to this country. One man cannot develop the country. Individuals have capacities and limitations. We need to unite our capabilities to govern this country. It’s a collective effort and the NPP is the only party to undertake it. That’s the point of difference. There are talented people from all fields like history, economy, mathematics, law and so on. There are lawyers, university academics and professionals. The government has to unite these capacities and talents to bring optimum results for the country. NPP will do that. For that we have to abolish executive presidency and rewrite the constitution vesting more powers in the Parliament. We will bring about this change,” he said.
Dissanayake said an NPP administration will limit the number of Ministers to 18. He added that crossovers have distorted the democratic system and corrupted the political culture.
“People vote for them in one party but for money and positions they change political allegiance. This has become a public nuisance. Some MPs demand ransom to stay in the party. We will add a provision to the Constitution to ban crossing over,” he said.
JVP: Where are President’s influential foreign friends?
By Rathindra Kuruwita
President Ranil Wickremesinghe, who assumed duties, claiming that he had very influential friends overseas, now claims he can hardly afford to pay government servants, National People’s Power (NPP) MP Vijitha Herath says.
“If anything, things are worse than before. The government is afraid of the people and is trying to postpone elections,” Herath said, adding that the March 09 local council election would mark the beginning of the end for the Ranil-Rajapaksa administration.
Herath said so addressing an NPP election rally recently.
“They will no longer be able to pretend that the people are with them. Not that they have any legitimacy, locally or internationally, but the level of their unpopularity will be seen on 10 March,, when the poll results are announced” he said.
Strong winds over Eastern, Uva, Western, Central and Sabaragamuwa provinces and in Galle, Matara, Mullaitivu, Jaffna and Kilinochchi districts.
DG Information ignorant of basic election laws and regulations: ECSL
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