The yen touched base with the rupee on Monday as a balance of payments deficits notches higher and speculation of exchange controls continue to linger in the market. The yen touched base with the rupee on Monday as a balance of payments deficits notches higher and speculation of exchange controls continue to linger in the market. Yen’s one for one with Sri Lanka’s weakening legal tender and is up some 0.0131 cents since its last trade on Friday and about 25 percent since January.
The rupee has been losing ground to the basket of trading currencies, including the weak dollar since late 2003 as imports continue to outstrip exports, putting pressure on the local currency.
Sri Lanka’s trade gap stretched to US$ 1.46 billion by August this year, up US$ 586 million from a year ago on a 38 percent higher fuel bill.
The Central Bank recently said that Sri Lanka’s import bill grew 20 percent to US$ 5.05 billion up from US$ 4.22 billion the year before, with global oil prices racing to new records.
Export earnings only grew eight percent up to August, bringing in US$ 3.59 billion, up from US$ 3.34 billion.
Against the yen, the rupee has moved from 0.7091 cents in 2001 when Central Bank let market forces determine exchange rates to 0.8164 cents in 2002 and to 0.9044 by end 2003.
Even when Japan intervened heavily in the foreign exchange market in 2003 and early this year to help a weak economy and slow down imports, the rupee continued its slide.
Japan sold some 35 trillion yen ($332.2 billion) in 2003 through to March this year to manage its currency, but has stopped since mid this year as its economy has sent into a recovery trend.
Policymakers have called the continuing down trend short term speculation by the market while the Central Bank has been periodically stepped into the market to shore up the rupee.
Since January todate, the Bank has sold some US$ 230 mn to keep the rupee from making a rapid descent.
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