Sept 28, 2015 (LBO) – Sri Lanka’s currency is now competitive after being floated last month and will support export growth, the central bank governor told media on Monday.
“Like other currencies in emerging markets, the Sri Lankan currency has also adjusted to become slightly weaker against the U.S. currency,” Arjuna Mahendran, the central bank governor, said.
“Economy is progressing on an even keel. Trade deficit hasn’t grown too sharply and imports have been relatively well contained,” he said.
Referring to a seven percent depreciation of the rupee against the dollar so far this year, central bank officials said the Real Effective Exchange Rate was now more competitive.
“The exchange rate is now achieving equilibrium after initial volatility,” Mahendran said.
Commenting on credit growth to the private sector above 15 percent, which is a sign of loose monetary policy, Mahendran added: “I won’t rule out the possibility of a rate hike if credit growth continues to grow faster.”
This credit growth above 15 percent had prompted a report to the Finance Ministry from the central bank informing it of the situation, he said.
However inflation remains low and there is no issue of the central bank printing money at the moment despite a high holding of treasury bills and bonds, the deputy governor Nandalal Weerasinghe said further highlighting why the current monetary policy stance was appropriate.
If there was printing of money, there should be visible signs of it such as high inflation, Weerasinghe said.
The trade deficit was also beginning to narrow with steps taken to address a widening, with a float of the rupee and a reduction of the loan to vehicle ratio of leases to 70 percent.