Sri Lanka should stop intervention before it is too late: economist

Nov 29, 2008 (LBO) – Sri Lanka should stop a self-destructive sterilized intervention cycle of the national currency and move to stabilize the economy, to prevent an even more dramatic fall of the currency, an economist has said.

Kamikaze

Before mid-September when the central bank started a sterilized intervention cycle and started putting pressure on the rupee, Sri Lanka had accumulated about 3.5 billion dollars. Sterilized intervention is continuing with only one end sight.

The central bank has said earlier it was holding the rupee because it wants to break a decades old cycle of inflation and depreciation, which started after a central bank was created in 1950.

But for Sri Lanka’s central bank, the problem is very simple. It says market pricing goods or exchange rates, is not a solution.

“We have been adjusting certain variables for over 30 years,” the monetary authority’s chief economist Nandalal Weerasinghe told a seminar earlier this month.

“We have been adjusting exchange rates. But we have been having those kinds of deficits – current account and trade deficits – for the last 30 years.”

Weerasinghe says a core problem is fiscal deficits. He says deficits cannot be reduced in