Financial Times

Rupee begins to slide against dollar, sterling
The rupee has begun to weaken against the dollar and sterling amid growing political uncertainty and high fuel import spending despite strong economic growth in the first half of the year.

The rupee has fallen 2.5 percent to date owing to soaring oil bills and delays in improvements in the “macro picture”, after a sharp six percent appreciation in January 2005, HNB Stockbrokers said. Last week the dollar was quoted at 100.85 rupees and the pound at 182.10 rupees.

“Forex markets anticipated a continuous flow of dollars to the economy during the post-tsunami rebuilding but the inflows have remained ad hoc so far due to the slower recovery pace,” the stockbrokers said in a report.

“On the other hand, the failure to implement Post-Tsunami Operational Structure (P-TOMS) has delayed the much awaited aid flow to the country. Thus the currency is on a threatening depreciating trend.” However, the brokers said, the expansion of external trade continued during the first half of the year.

Export earnings increased by 11.5 per cent during the first half of the year, reflecting a continuous improvement in all three major export categories.
Expenditure on imports increased by 10.3 per cent during this period.

Official international reserves have increased because of higher private remittances, official inflows to the government and the benefit of debt relief, thus providing some stability to the domestic foreign exchange market.

“However we strongly believe that the progress of the peace process and the resultant aid flow is necessary to maintain the exchange rate in the current range and to limit the depreciation to four percent during 2005.”

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