CBSL gov. Coomaraswamy defends the LKR decline

Colombo (News 1st) - The Governor of Central Bank addressing a forum spoke about Sri Lanka's economy. CBSL Governor Indrajit Coomaraswamy stated that the exchange rate is not the key determinant of a country's economy. He said in his view progress has been made to stabilize Sri Lanka's economy. He stated that even though the economy has progressed, the exchange rate is under pressure as interest rates have been imposed in the US due to the trade war between China and USA. CBSL Governor Coomaraswamy further noted that the US pulling out of the Iran nuclear deal has created uncertainty both in the oil market as well as within the region, and this is also a factor for the USD to fluctuate. He then exclaimed that it is not only affecting Sri Lanka and that as of today (September 21), the Argentinian exchange rate had depreciated by 50%, Turkey by 40% , Indian currency by 10%, Philippines by 8%, Australia by 8%, and the Sri Lankan rupee by 8%. The Governor further explains that in 2011/ 2012 over USD 4 Bn were spent on defending the currency. But the currency had depreciated and the reserves were also used up. He then explained that in 2015 this government spent USD 2.1 Bn trying to defend the exchange rate and it depreciated by 9%m anyway. The Governor stated that trying to spend large amount of reserves to defend the currency simply does not work. While the central bank governor relies on the annualized depreciation figure of close to 8% since January 2015, news 1st would like to point out the comprehensive story. When one examines the depreciation against the US dollar, from January 2015 to date, the stark reality of what has happened to the exchange rate become abundantly clear. According to our calculations, depreciation is closer to 27.5%.