Drastic measures to defend the rupee
Controls on non-essential imports like butter and cheese, reducing fuel consumption and higher tariffs on luxury goods, are among a series of measures planned by the Government to prevent a further erosion of the rupee.
The Central Bank is also expected to announce a significant, pre-emptive hike in policy rates, economic experts said adding that the Monetary Board will examine this at its monthly meeting on Tuesday.
As a short term measure, higher taxes would be imposed on non-essentials like air conditioners, refrigerators, speakers, luggage, luxury cars mobile phones and other electronic items, official sources said.
This is expected to reduce demand on essential imported commodities including, petroleum, pharmaceuticals, textiles, apparels, and foodstuffs and footwear.
The sources said an expert committee will be appointed to find ways and means to face the current economic situation while considering the possibility of granting a fuel subsidy for passenger transport service.
The possibility of reducing oil imports and cutting import costs while stockpiling oil is now being explored amid high oil prices and a weakening rupee against the US$.
With the next new pricing formula schedule due on October 10, the authorities are also looking at a price revision.
As a last resort a directive is likely to be issued to the Ceylon Petroleum Corporation (CPC) and the LIOC to maintain a buffer stock by purchasing fuel when the price is low, a reliable government source said adding that they anticipate a fuel price hike when US sanctions on Iran come into effect again in November.
Sri Lanka has stopped crude imports from Iran and is purchasing from Singapore, Dubai, Fujairah, a senior CPC official told the Business Times adding that they have still not been informed about this new directive.
CPC and LIOC are to be directed to enter into specific contracts with foreign oil suppliers to take delivery, from the seller, a specific quantity of oil at a predetermined price on a future delivery date.
The government is also considering the possibility of introducing a designated dollar swap window for the CPC and LIOC as another option in tackling rupee fall as fuel prices are exerting pressure on Sri Lanka’s import bill.
It has been suggested to encourage exporters to convert their dollar earnings into rupees and increase interest rates on NRFC deposit accounts.
Some other options that the government will have to select from to deal with the rupee’s depreciation are increasing interest rates or opting for foreign bonds to swell the country’s forex reserves, official sources added.
| Central Bank ‘muzzles’ dealers | |
| Money market dealers have been urged to refrain from speaking to the media over conditions in the market particularly the movement of the rupee against the US$. The “request”, which some dealers said was a directive, came during a recent meeting with senior Central Bank officials and dealers. The move came as the banking regulator assessed ways of halting the depreciation of the rupee. Dealers said the local currency moved in the 20 cents range with the dollar being quoted at buying rate Rs. 169.30 and selling rate Rs. 169.10. There were no major fluctuations in the rupee this week, they said. |