Cabraal claims Central Bank has returned to ‘fixing’ exchange rate via ‘guidance’ rate

24 June 2022 06:55 am - 25 - {{hitsCtrl.values.hits}}

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Former Central Bank (CB) Governor Ajith Nivard Cabraal claims that CB has returned to fixing the rupee/dollar exchange rate through the introduction of the so-called ‘guidance’ rate which he views as similar to the fixed rate adopted by the CB under his predecessor Prof.W.D. Lakshman.

“.... the LKR continued to depreciate to a range of Rs. 364.23/377.50 against the US$ by 12th May 2022, at which point, the Monetary Board had apparently once again decided to ‘fix’ the exchange rate at a new range between Rs.355.00/Rs.365.00 per US$.

Such a move to ‘fix’ the exchange rate seems quite similar to the policy adopted by the Monetary Board chaired by Governor Professor W. D. Lakshman which “fixed” the LKR exchange rate at a range of Rs.199.00/203.00 per US$ from 6th September 2021 onwards,” Cabraal said in a
statement to the media.

However, the CB on multiple occasions has denied claims on attempts to fix the rupee/dollar exchange rate through ‘guidance’ rate, while stressing that it has been decided by market forces.

“Although this arrangement is often misinterpreted as ‘pegged exchange rate’ regime, there are clear distinctions between the current transitory arrangement and the pegged exchange rate system. Under the pegged exchange rate regime a fixed middle rate is usually dictated by a Central Bank, while market-driven variable spot rate being considered as the middle rate under the current arrangement,” the CB said.

The CB believes that ‘guidance’ rate has resulted in less volatility and more predictability in the domestic forex market.

Meanwhile, Cabraal defended the sudden decision let the rupee go in March after artificially holding the exchange rate for six months. He noted that the rupee float was recommended by key CB officials and was endorsed by the Monetary Board.

“The decision to allow flexibility in the exchange rate was taken by the Monetary Board of the Central Bank of Sri Lanka based on a Monetary Board Paper dated 7th March 2022 submitted by all three Deputy Governors (Mahinda Siriwardene, Dammika Nanayakkara and Yvette Fernando), Director - Economic Research Department and Director - International Operations Department.

The Board Paper stressed the need for changing the exchange rate policy immediately in order that the exchange rate acts as a “shock absorber” in the face of adverse developments in the global front on Sri Lanka’s already fragile Balance of Payments, including the increase of the crude oil price to nearly US$ 140 per barrel and the worsening Russia-Ukraine war,” the statement said.

Although, Monetary Board had expressed its “view” to maintain rupee at Rs.230 per US$, the rupee was trading at Rs. 289.73/299.99 per US$ when Governor Cabraal resigned on April 4, this year.

Since then, Cabraal opined that steep policy rate hike as well as pre-emptive default on the country’s external debt to have contributed to the fall of the rupee, which forced the CB to introduce the ‘guidance’ rate.

“After Governor Cabraal’s exit, the Monetary Board chaired by the new Governor Dr. Weerasinghe continued with the “flexible” exchange rate policy, whist the government and the CBSL also took a series of far-reaching decisions which included the decisions to sharply increase policy interest rates by 700 bps from 8th April 2022 onwards, and to discontinue repayments of forex loans and interest from 12th April 2022 onwards. In the meantime, the LKR continued to depreciate to a range of Rs. 364.23/377.50 against the US$ by 12th May 2022,” the statement added.

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Comments - 25

Andy Friday, 24 June 2022 07:30 AM

I shay Cabby, what happened to your famous HGS, ("Home Grown Solution") ?. Try this in your home !!!

Russel Harmmer Friday, 24 June 2022 07:47 AM

Why this fellow Cabraal is still not arrested for all his wrong doings.

Dinesh Friday, 24 June 2022 07:50 AM

I think you should shut up!!!!!!

Bannis Mama Friday, 24 June 2022 07:50 AM

Ajith Nivard Cabraal should be kept behind bars? Why Jonny is not punished? Gota and Ranil are protecting them because they too are the worst rogues.

Truth (Atha) Friday, 24 June 2022 07:51 AM

Risk of lives of Gota and Ranil, just for your information.

Siripala Friday, 24 June 2022 07:59 AM

Shout-up, send this traitor to the jail.

ravin Friday, 24 June 2022 08:04 AM

Capable are doing whatever they can to get back the economy to manageable level what incapable;s have ruined. Best what you can do is RIP.

Adwani Friday, 24 June 2022 08:15 AM

Debating merely on Exchange Rate is not the issue. How much US Dollars has Central Bank remitted out like investing in Greek Bonds and other related outward remittances??? The Central Bank and Ministry of Finance are fully responsible for the deficit in Forex.

C Fernando Friday, 24 June 2022 08:20 AM

Why don't you just shut up? We don't want to hear from the likes of you who is one of the people who has brought this country to ruin. You should be jailed for crimes against the nation.

Topi Friday, 24 June 2022 08:23 AM

Yes he is correct the are holding the rupee at 365. Even nandalal is doing the same mistake. But is a bit smarter than cabba ...so he klwz how to disguise it........ the rupee cannot be kept at 365 for too...

Banker Friday, 24 June 2022 08:25 AM

This man is now trying to not only defend himself but also Prof. Laxshman. He can continue to do so until he is fixed one of these days.

Chris Friday, 24 June 2022 08:27 AM

All our educated Governors including Mr Cabraal seems to have fixed every thing else including their pensions and not fixed the proper policies and methods to fix the economy. Has education also failed in Sri Lanka?

Weer Fernando Friday, 24 June 2022 08:49 AM

Stupid governor who is one of the main culprits along with P B Jayasundera who are responsible for the current plight of the country. He was not doing his job as the governor of Central Bank but was more keen in managing the well being of Rajapakshe family. Karma will soon come and haunt you for the sins you have done and lives lost due to this economic crisis.

Duminda S Friday, 24 June 2022 08:59 AM

Why on earth is Media giving the spot light to a buffoon like this who ruined the economy during last 18 months....... He should be the last person giving his expertise regarding SL economy.

opinion poll Friday, 24 June 2022 09:07 AM

first of all no one asked for your bloody දෙකයිපනහෙ accountant opinion. if you are really jobless go cultivate some canabis. you need it.

BuffaloaCitizen Friday, 24 June 2022 09:14 AM

After bankrupting this country, this arsehole is still talking nonsense. If SL is fixing the US$ rate, then how do they have the reserves to do it, like the way you scrounged billions of our reserve only for that.

Tissa Fernando Friday, 24 June 2022 09:18 AM

Trying to justify what he did . He should be sent to jail for mismanagement of Central Bank.

Hubert Congreve Friday, 24 June 2022 09:22 AM

Hate to listen to this rotten fellow Cabraal neither look at his ugly embalmed face, who robbed our money and helping Mahinda.

Chris Friday, 24 June 2022 09:49 AM

May not like what he says but it is beginning to look that way.

Sunil Friday, 24 June 2022 09:49 AM

Why is this scoundrel allowed to open his filthy mouth. One of the most notorious crooks the country had seen. Action should be taken to put him behind bars for good. The entire country is suffering because of his misdeeds.

Alman Friday, 24 June 2022 09:55 AM

Can someone please tell us where this man lives!!!!

Ranjan Friday, 24 June 2022 09:57 AM

This man who ruined the whole economy is trying to advise the present Governor. Keep your mouth shut otherwise you will become a laughingstock

Imtias Friday, 24 June 2022 09:59 AM

This joker should be kept of the media. Publicity stunt.

Shit storm Friday, 24 June 2022 10:26 AM

You have put us into this crisis and no one is willing to listen to you You are only a talker. You better keep quiet.

Giriya Friday, 24 June 2022 09:10 PM

Cabby, what is term used,,when you pay USD500 mn on a maturing bond, knowing very well that we on the verge of collapse.

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Cabraal claims Central Bank has returned to ‘fixing’ exchange rate via ‘guidance’ rate

Comments - 25

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