Sri Lanka: Rupee Appreciation A Positive Sign

The rupee appreciation that was witnessed in the past few days will have a positive impact on the economy, an investment professional said.

“The depreciation of the rupee brought a negative side to the country’s economy. A correction with regard to the over depreciation of rupee is taking place at present. The over depreciation of the rupee compared with the index has come to an end and this is a positive sign for the economy,” former President Stock Brokers Association of Sri Lanka, Ravi Abeysuriya said.

Foreign investors are investing in government Treasury Bills and with a certain amount of inflows coming into the system by way of funding such as International Sovereign Bonds and the building up of reserves, have enabled the appreciation of the rupee. These will have a positive impact on the economy while the reversal of treasury instruments has reduced the amount of hot money coming into the system, he said.

The rupee depreciated by 19 percent last year. The exchange rate for the Dollar as at December 31, 2018 was Rs. 184.69. It is the highest exchange rate for the dollar so far.The rate has dropped by Rs. 4.50 to become Rs 180.19 as at January 31 this year.

The exchange rate as at March 22 was 179.79 and the rate for last Friday was 178.02. The rupee has appreciated within the past week bringing down the exchange rate further. Export earnings which also impact the exchange rate is been converted to rupees to keep down borrowing cost. The exchange rate is subjected to maturing of foreign borrowings, exchange required for exports and payment of oil bills which is rising. However, the government needs to prudently manage the borrowings, he said.

“If we are able to move towards hundred rupees/dollar with regard to the basket of goods, not over valued or under valued, the industry confidence and investor interest will grow. As rupee depreciation is negative for any investor and the appreciation of rupee which is happening at present is a positive sign,” he said.

The present investment in the stock market will go up with the building of investor confidence. The signs are all around positive. We are in the right direction.The rating agencies which downgraded the country’s ratings will evaluate it again. With better rains and better harvest, the country will have improved living standards and more economic benefits, he said.

The decision taken by the Central Bank to monitor and restrict the ‘hot money’ coming in to the country is a good move. It’s limit was 10 percent and has come down to 3.5 percent at present. The uncertainty of foreign investors investing in Sri Lankan rupee debt instruments has been removed with this move. The 5 percent limit was too high and now it is at the correct level. This is an encouragement for investors, he said.“If the rupee appreciation trend continues it will be a good thing for the country’s economy. This is good news and not damaging the economy. We will not see money moving up in the future,” Abeysuriya said.