Financial Times

Forex rate must not rock to political beat
Central Bank governor A. S. Jayawardena said last week that the exchange market should not dance to the tune of political crises but take a long term view since the island's economic fundamentals had not changed despite the prevailing uncertainty.

"The larger than normal movements in the exchange rate reflects the current uncertainty," he said. "We expect the market to take a long term view. There may be political and other musical chairs but economic fundamentals have not changed."

The Central Bank still feels the economy can grow at six percent in 2004. "There could be untoward events but the market should not rock with every untoward event," Jayawardena said in an interview. The Central Bank believes a rate of around 95 rupees to the dollar was alright for exporters to be competitive, he added.

The bank had intervened in the market to try to smooth out fluctuations in the rate. "We have an independently floating exchange rate reflecting our economic fundamentals," Jayawardena said. "Our rate was remarkably stable versus the US dollar for some time. But with the dollar falling internationally, the rupee is going down versus other currencies."

The rupee strengthened against the dollar with the large capital inflows that followed the peace process and foreign aid pledges but since the political developments started going down. "Now we're more or less where we started."

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