Rupee depreciation unwarranted - CB
The depreciation of Sri Lanka Rupee by 0.99 per cent during the past
two weeks against the US Dollar is not based upon any fundamental
macroeconomic factors.
Export earnings continued to increase during the first half of 2007
outperforming the high growth recorded in the same period in 2006.
Exports during the first half grew by 12.9 per cent from US dollars
3,162 million in 2006 to US dollars 3,569 million in 2007.
Meanwhile, imports grew modestly by 3.9 per cent to US dollars 5,150
million during the first half of 2007 compared to US dollars 4,995
million in the first half of 2006.
As a result of higher growth of exports over the growth of imports,
the trade deficit in the first half of 2007 narrowed down to US dollars
1,581 million from US dollars 1,793 million in 2006.
Worker remittances by Sri Lankan migrants increased significantly by
around 18 per cent to US dollars 1,314 million in the first half of
2007. The remittances helped to finance around 83 per cent of trade
deficit in the first half of 2007.
The Foreign Direct Investment (FDI) is estimated to have increased
substantially during the first half with the large number of projects
contracted during this period with the fast track approval procedure
ado- pted by the Board of Investment.
Financial flows to government too increased substantially during the
first half of 2007 to US dollars 603 million as compared to US dollars
358 million during the same period in 2006.
As a result of all the above strong external sector developments, the
overall balance of payments (BOP) recorded a surplus of around US
dollars 151 million during the first seven months of 2007.
Reflecting the BOP surplus, the gross official reserves (excluding
ACU receipts) increased to US dollars 2, 681 million by end July 2007
from US dollars 2,526 million at end 2006. The reserves at end July 2007
are sufficient to finance about three months of imports.
The external competitiveness as measured by the movements in the 24
currency Real Effective Exchange Rate (REER), depreciated by 2.4 per
cent during the first seven months of 2007 indicating improvement in the
external competitiveness of Sri Lanka.
Based on strong economic fundamentals particularly in the external
sector, the Central Bank is of the view that the depreciation of rupee
that has taken place during the past two weeks is unwarranted. |