Rupee depreciates 7% so far this year: Central Bank

28 September 2015 02:46 am

•     Policy rates held at record low level
•     Private sector credit up 21%
•     Foreign reserves at US $ 6.4bn in August

Sri Lanka’s rupee has depreciated by around 7 percent against the US dollar so far this year with the Central Bank’s decision to allow greater flexibility in the determination of the exchange rate. 
The Central Bank (CB) said the rupee depreciation would contribute positively to the country’s exports and trade gap. 
“The recent depreciation of the exchange rate, which would enhance exports, while curtailing nonessential imports, is expected to have a favourable impact on the trade balance.
Such improvement, together with regular inflows of workers’ remittances and earnings from tourism along with other inflows to the services account would help narrow the deficit in the current account balance and strengthen the resilience of the external sector.”
However, the defending of the rupee until it was floated recently, has taken a toll on the country’s foreign reserves. 
The gross official reserves, which stood at US $ 6.8 billion at end July 2015, are estimated to have decreased to US dollars 6.4 billion by end August 2015. 
However, the Central Bank said official reserves were expected to increase during the remainder of the year with the expected long term external financial flows to the government.
Meanwhile, Sri Lanka continues to hold policy rates at record low levels for a fifth month, highlighting benign inflation.