Saturday, 10 April 2021 00:35

Sri Lankan rupee goes down the drain with foreign currency swaps Featured

A significant depreciation pressure on the Sri Lankan rupee was observed since the dates of entering into Currency swap agreements with India and China.

The rupee has come down sharply and it has fallen to Rs.187.86 per dollar on July 31 from Rs.188.02 on July 24 2020 in six days since signing the currency swap with India, Central Bank data showed.

The down fall of the rupee against the dollar during this period is Rs.182.02 on July 24, Rs.182.02 July 27, Rs.188.01 July 28, Rs.188. July 29, Rs.187.95 July 30, and Rs.187.86 on July 31.

This was in ascending order showing the rupee fluctuating in upward trend and depreciating it against the droller after the Indian currency swap.

When currencies depreciate, the price structure of the country is pushed up and more taxes have to be charged and the prices of energy and food commodities go up, reducing the real salaries of the working class and pushing up running costs of the government and companies.

In the downturn that follows a currency collapse, taxes on the public have to be raised to cover government spending especially salaries of state workers.

Sri Lanka’s external problem is linked to medium and long term solvency requiring debt restructuring and is not a short term liquidity problem that can be solved by swaps, Opposition MP Dr. Harsha de Silvar said.

According to veteran economic expert and financial analyst, a sufficient inflow of foreign exchange is needed to reverse rupee depreciation and its down fall after the Indian currency swap equivalent to US$400 million has not met this requirement.

The recent China Yuan swap with Sri Lanka was also unlikely to meet this requirement of boosting foreign reserves as it was a Chinese currency facility and not a dollar one, he pointed out.

“Since the swap is in Yuan the Government can only use that money to pay import bills. This is useful since China is one of the biggest import destinations with Sri Lanka regularly importing about $ 3.5-4 billion in goods, he added.

But it will not top up reserves and that is what Sri Lanka really needs,” eminent economist told the Business Times on conditions of anonymity.

On March 10 2021, the State Minister of Finance Ajith Nivard Cabraal has announced that the Peoples Bank of China had approved 10 billion Yuan currency swap with Sri Lanka.

The rupee has depreciated to Rs. 203.50 against the US Dollar on April 08 from Rs. 198.66 on March 10 in 10 days after entering into Chinese currency swap agreement, Central Bank data showed.

The Rupee fluctuated in an upward trend from Rs.198.66 on March 10 , Rs. 198.87 March12,Rs.198.96 March 15 , Rs.2002.06 on March16. Rs 202, 04 March 31, Rs.202.10 April 01 , Rs.201.95 April05, Rs.202.70 April 06, Rs.202.88 April 07 and Rs.203.50 April 08.

Up to now the Central Bank’s intervention in the domestic foreign exchange market through supply of foreign exchange and sell/buy swaps with local commercial banks has contributed to enhancing the foreign exchange liquidity in the market.

State Minister of Finance Ajith Nivard Cabraal expressed his confidence that fresh foreign exchange inflows are on the way and government policies are in place for creating the right environment to attract them.

 

 

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