The government has indicated that it would move towards a fuel price hike, says the Central Bank Governor Ajith Nivard Cabraal.
In an interview with Bloomberg, he also brushed off suggestions that the rupee exchange rate must not be controlled, insisting that the present rate is fair.
Cabraal was asked during the interview whether he agrees with the claim that the pegged rate of Rs. 202.99 for the USD is not sustainable.
“Sometimes the market conditions that people look at are only the trade markets. But we got to look at the markets a little bit beyond. We got to see what the debt market is like, what the remittances market is like, what the government transactions market is like and what the other factors are definitely impacted by the rate of the exchange.
“Therefore, when you look at all those areas, I think the rate at which the Sri Lankan rupee is trading today is a fair one. It provides opportunities for all stakeholders and I think sometimes although people look at it from certain angles and they believe that the exchange rate should be different, we, from the Central Bank, take a holistic view and then as a result we are able to it at a reasonably good places so that people will be able to do all their transactions in a fair and a good manner so that we can go forward with greater confidence.”
When quizzed as to whether the rates should be further hiked to support the currency, with Sri Lanka’s inflation also being among the fastest in the region, the Central Bank governor responded, “We are also as concerned as anyone else about the inflation, but we have also observed that the main element of inflation is imports driven. We are seeing the effects of commodity prices impacting the Sri Lankan inflation rates and therefore we have been reluctant to increase it too much. But as you know, at the last country policy review we did increase the interest rates and we now see that after the adjustment, the markets are behaving in a fairly confident manner which shows that the rate increase has now already been taken into consideration by the market. So, I think right now the rates are appropriate and we would watch it and if that need any further adjustment, we are ready to do so.”
On the prospect of approaching the International Monetary Fund (IMF), the Central Bank Governor pointed to various indicators and questioned as to what else the IMF could do, other than what the government has done, and plan on doing.
“I am looking at the investor confidence which is a very important factor. All our bond auctions have been fully subscribe and the interest rates are moderate. [...] When you look at Sri Lanka’s GDP growth, it’s growing at five percent this year. We are seeing tourism coming back, we are seeing the general conditions of the banking sector also in good shape. So, I think investor confidence is there. We don’t really need to add too much to the investor confidence, because if we are saying that we need to go to the IMF to boost investor confidence, what more could it do? We are having our bonds subscribed, we are seeing that our growth is back, we are seeing the tourists coming back, we are seeing the overall economy in a fairly stable manner. So, I think that’s important for us to recognize and we are also doing certain changes in our economy, particularly the fuel prices. Now there is an indication that the government would be looking at an increase in the fuel prices which is what the IMF also would have naturally come up and perhaps advised us to do.”
Governor Cabraal also urged the G20 countries to be more sensitive towards issues emerging markets and recognizing them realistically without limiting them to paper.
