Sri Lanka rupee overvaluation seen hurting tea exports

March 16, 2009 (LBO) – An artificially strong rupee could further hurt exports of Sri Lankan tea to key markets whose currencies have been devalued in recent months, a brokerage has warned. Asia Siyaka Commodities said Colombo auction tea prices would remain firm in the first quarter, with a probable dip in the second, and pick up again in the third quarter with the onset of buying for the northern hemisphere winter.

“The strong rupee in Sri Lanka will continue to add cost to our overseas buyers in comparison with India and Kenya whose currencies have shed value,” the brokers said in a report on last year’s performance and outlook for 2009 given the global economic crisis.

“On the other hand Sri Lankan exporters lose margin on top of high interest rates while facing inflationary pressure on costs.”

High levels of domestic inflation compared to the rest of the world, makes a currency progressively ‘overvalued’. High domestic inflation pushes up costs of ‘non-traded’ inputs, especially labour.

The global credit crunch will continue to stifle trade and will restrict traders more than producers, Asia Siyaka Commodities said.

“In Sri Lanka producers and traders are incre