Sri Lanka changes exchange rate index base

May 30, 2007 (LBO) – Sri Lanka has changed the base year of two indexes that track the performance of the rupee against the country’s trading partners to reflect the changing structure of trade in recent years, the Central Bank said. However since January 2007, the central bank has embarked on an aggressive stabilization effort that has seen inflation plummeting, but without any support from the budget in the form of better fiscal discipline, the country’s interest rates have moved sharply higher. The bank said it was shifting the base year for the Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) from 1999 to 2006.

“The choice of the base was supported by the resilient external sector performance during that year,” the Central Bank said in a statement.

“Also this would facilitate comparison of exchange rate movements with more recent changes in the macro economic environment.”

The index NEER is assesses the overall movement of a country’s currency against all other currencies, but does not take the relative inflation of the countries into account.

“It is a weighted average of bilateral exchange rates of a country relative to a chosen base period,” the Central Bank said.

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