Free Float Of The Currency Was Ill-timed; CBSL Chief
Posted 13,April

By Chehan Jayasuriya

In Local News

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CBSL Governor Dr. Nandalal Weerasinghe criticized former Governor Ajith Nivard Cabraal on how the exchange rate was managed, stating that the fixed rate was too long while the free float was not credible in terms of timing and sequencing.

Dr. Weerasinghe said that if a fixed rate was to be maintained, it should have been gradually increased, keeping in line with the market conditions, instead of artificially protecting the rupee for prolonged periods, thereby incentivizing the black market.

The Governor opined that the poorly addressed Balance of Payment crisis made CBSL’s decision to float the rupee less credible. 

He pointed out that had the free float been implemented following a tightened monetary policy, demand as well as imports could have been reduced while paving the way for a more prudent fiscal policy, an upward adjustment of prices of fuel and other utilities, and ultimately strategic discussion with the International Monetary Fund (IMF).

Monetary Board on Friday decided that further actions were needed to tackle the excessive depreciation of the exchange rate and the below-average performance in foreign currency inflows. Accordingly, policy rates were increased by 7% on Friday, the tightest monetary policy stance in the history of CBSL.