Government Set Policies For Another Rupee Crisis
Hema Senanayake
The Exchange Control Department has issued a press release on June 12, 2013. The objective of the press release was to relax foreign exchange regulations. The press release justified the relaxation of regulations and says “During the past few years, Sri Lanka’s macroeconomic fundamentals have improved and the domestic financial sector has become stronger and more resilient.” This was the learned conclusion of the Exchange Control Department (ECD).
Within one week of the said press release, it has been proved that the “learned observation” of the ECD was grossly wrong. Within days after the press release the rupee depreciated quickly; the selling rate of U.S. dollar hit Rs. 130 on some days. However, exporters wanted to take the advantage quickly and they began to exchange part of their dollars to rupees which helped to stabilize the rupee a few days later.
However the rupee will never gain the value it had on the day of the said press release of ECD. Why? Forget about the appreciation of rupee, even significant depreciation cannot be stopped, at least, due to two reasons if the government fails to borrow in USD. Read More
