Nov 23, 2011 (LBO) – Sri Lanka has to balance the needs of export and import substitution industries against bond markets, Treasury Secretary P B Jayasundera said two days after a step devaluation of the rupee announced in the budget. “We need to balance,” Jayasundera told members of the Institute of Chartered Accountants of Sri Lanka in Colombo Wednesday.
“Bond markets versus real economy is a balancing factor. Certain adjustments may happen. That is how economies are managed.”
He was responding to comments on central bank independence following the devaluation through a fiscal policy statement Monday afternoon which put forex markets out of action for the rest of the day.
Jayasundera is also a member of the rate setting monetary board of the Central Bank.
He insisted that central bank’s independence was not compromised.
“Exchange regime remains independent,” Jayasundera said. “Central Bank remains independent. And flexibility will remain. It may appreciate again.
“But exporters and the import substitution industries also needed direction by saying the government is for export oriented policy.”
In the past Sri Lanka’s high inflation and currency depreciation has been blamed on fiscal dominance of monetary policy.
Jayasundera said India’s currency has depreciated and its finance ministry has made a statement in the media saying there is further pressure.
“When all the whole world recognizes there is some degree of overvaluation, not because of the fault of the central bank or the fault of the government, but because of the reserve inflows that have taken place through various mechanisms in the past to stabilize the economy, (the) country needs to look at the global environment,” Jayasundera said.
He said the budget has set the direction for the county and he was confident that growth and inflation objectives which has been “credibly established” over the last two years will not be compromised.