Apr 05, 2010 (LBO) – Sri Lanka’s exporters should get ready to face a steadily strengthening exchange rate and improve productivity to operate in the new environment, Treasury secretary P B Jayasundera said. “Our currency has depreciated but from this year, it will appreciate,” Jayasundera told a forum at central bank’s headquarters in Colombo.
“Our people will have to work with strong exchange rates. It is the main challenge.”
“I am not saying it will go to 50 rupees (to the US dollar) in one day. But from 113 rupees, in the next three years if it goes to 100 rupees, productivity has to be raised.”
Sri Lanka’s rupee is soft-pegged to the US dollar, and has depreciated steadily from the creation of the central bank in 1950 as the government printed money to finance its budget deficit after gaining independence from British rule.
Sri Lanka had a hard peg (currency board or fixed exchange rate where money printing by domestic asset acquisition is not possible) from 1885 to 1950 and there was no exchange rate depreciation.
Printing money also creates higher-than-anchor-currency inflation in the pegged currency country, raising the cost of non-traded goods and serv