Sri Lanka central bank defends itself from hedging fire

Nov 05, 2008 (LBO) – Sri Lanka’s central bank, under fire for advising a state-run petroleum firm to hedge oil imports using derivatives in the belief that it helped the balance of payments, has issued a statement defending its actions. The full statement is reproduced below:

Hedging : A Clarification re. the Central Bank’s Role

The attention of the Central Bank of Sri Lanka (CBSL) has been drawn to recent media reports wherein it had been claimed that the government was trying to protect certain officials including the Central Bank Governor, Ajith Nivard Cabraal. While, as a policy, the CBSL does not respond to individual statements, since the tone and nature of some of these remarks and analysis appears to impute impropriety of the conduct of the Governor and certain other officials of the CBSL and thereby to tarnish the image and credibility of the institution, the Central Bank wishes to issue this statement in order to set the record right.

(1) Towards the latter part of 2006, oil prices started to increase sharply and that resulted in Sri Lanka’s expenditure on petroleum imports to rise from US dollars 837 million in 2003 to an estimated US dollars 2.1 billion in 2006. The following Table that was prep