Sanity will prevail, over speculation says Dr. PB
Finance Ministry Secretary Dr. P.B. Jayasundera yesterday insisted that the recent fall in the value of the rupee was unwarranted and blamed it on speculators as recent corrective policy actions had strengthened fundamentals for greater stability in the exchange rate.
“The recent spike is due to speculation more than on fundamentals. I reiterate that the US Dollar exchange rate will stabilise below Rs. 125. There is no reason why the rupee’s value has to go beyond that. The monetary and fiscal policy measures taken recently will ensure greater stability,” Dr. Jayasundera told journalists yesterday.
“Speculators if they wish to can drive themselves and find their level but recent measures taken are based on best professional positions and will have a beneficial impact bringing stability in rates and economic growth. Speculators cannot go on regardless of the fundamentals. Sanity will prevail, bringing about stability,” he added.
To drive home the point that recent policy measures will strengthen the fundamentals, he emphasised: "The depreciation of the rupee is beneficial all-round as it supports exports, the import replacement sector and energy conservation.”
He assured that exchange rate dynamics would stabilise. “You have to let the market adjust itself and cannot let speculators thrive.
However, He suggested that a mix of using reserves to defend the rupee as well as allowing market flexibility to adjust itself was the way forward. However, the Treasury Chief warned that if speculators persist disregarding the fundamentals, then the Government will intervene. “If the element of speculation goes beyond tolerable levels, then we will intervene,” he added.
The Treasury Chief explained that policy rates were increased to effect an upward revision in interest rates to curb credit growth, whilst taxes on vehicles, along with revision in fuel prices, were implemented to discourage imports. There were also subsequent adjustments in electricity tariffs. He said that even after these changes if the economy wasn’t responding or adjusting and if people wanted to import at a higher exchange rate, then it showed the strength of the economy.
The recent spike, according to him, was despite the $ 427 million inflow from the IMF as well as strong indication of the $ 500 million bond of Bank of Ceylon being snapped up, which took place on Friday. This resource strength was another reason, apart from policy measures, which Dr. Jayasundera cited for markets being speculative rather than being influenced by fundamentals.
Dr. Jayasundera expressed confidence that inflows would improve whilst recent measures have saved valuable foreign exchange as well. “Between February and April, Central Bank intervention has been below $ 200 million,” he added. He also said that the cost of vehicle imports, which amounted to $ 1.7 billion in 2011, is forecast to dip to around $ 700 million this year following the tax hike.
Foreign Direct Investments are also expected to improve this year with popular sectors being tourism, apparel, steel, telecom, ports, property development, dairy and manufacturing. These sectors as well as agriculture are also drawing local investments.
He also said that a substantial part of the $ 450 million investment in the new Colombo Container Terminal would be realised this year as well as in 2013 whilst the ITC’s investment of $ 75 million to build the Sheraton Hotel was expected by early May.
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