Sri Lanka says rupee will appreciate and interest rates will fall

Chairman of the Colombo Stock Exchange Dumith Fernando presenting the sponsorship cheque to President of CA Sri Lanka Manil Jayesinghe

Nov 06, 2007 (LBO) – The Sri Lankan rupee would appreciate to 110 to the US dollar and interest rates and inflation would fall further, Treasury Secretary P B Jayansundera said Tuesday. His comments come as the tiny island’s monetary system was overwhelmed by a 500 million dollar injection and the central bank struggled to sterilize a record 30 billion rupee excess liquidity, raising fears of further inflation.

Inflation in Colombo shot up to 19.6 percent in October while country-wide inflation was 22.1 percent in September as the Treasury relied upon the central bank to print money for the deficit until the dollars came.

Of late there have been increasing calls for reforming the central bank to make it more independent and introduce inflation targeting to the country or abolish the central bank altogether in order to prevent high inflation in the country through money printing.

Jayasundera claimed that increases in world commodity prices like oil and wheat also pushed inflation up last year.

The Sri Lankan rupee should stabilize around 110 to the US dollar following an inflow of funds from a government dollar bond issue, Jayasundera said on the eve of a budget presen