Statement by Ajith Nivard Cabraal on 21^st June 2022 re. the decision to allow “flexibility” of the LKR

The decision to allow the Sri Lankan Rupee (LKR) to be “flexible” from 7th March 2022 onwards is sometimes described by certain persons as being an “unilateral” decision of then Governor Ajith Nivard Cabraal. Therefore, this statement is to provide the factual position so as to set the record straight.

The decision to allow flexibility in the exchange rate was taken by the Monetary Board of the Central Bank of Sri Lanka based on a Monetary Board Paper dated 7th March 2022 submitted by all three Deputy Governors (Mr Mahinda Siriwardene, Mr Dammika Nanayakkara & Mrs Yvette Fernando), Director – Economic Research Department and Director – International Operations Department. The Board Paper stressed the need for changing the exchange rate policy immediately in order that the exchange rate acts as a “shock absorber” in the face of adverse developments in the global front on Sri Lanka’s already fragile Balance of Payments, including the increase of the crude oil price to nearly USD 140 per barrel and the worsening Russia-Ukraine war.   

Based on that Board Paper and the discussion at the meeting, the Monetary Board decided to “allow the market to have a greater flexibility in the exchange rate with immediate effect and communicate that the Central Bank is of the view that forex transactions would take place at levels which are not more than Rs. 230 per US dollar”. From the above it will be clear that, while the Monetary Board had expressed its “view” as to the level at which forex transactions would take place as a market guidance, a clear decision had been taken to allow for the flexibility of the LKR in the forex market. On the same day, a statement was issued to the media in line with the above decision.

Refer: https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20220307_policy_package_to_support_greater_macroeconomic_stability_e.pdf

Further, within about a week of floating the LKR, the President made a formal announcement that the government had initiated discussions with the International Monetary Fund (IMF) for a programme.

Subsequently, Governor Cabraal resigned on 4^th April 2022, on which day, the LKR was trading at Rs. 289.73/299.99 per USD in accordance with the new “flexible” exchange rate policy as announced by the Monetary Board. After Governor Cabraal’s exit, the Monetary Board chaired by the new Governor Dr. Weerasinghe continued with the “flexible” exchange rate policy, whist the Government and CBSL also took a series of far reaching decisions which included the decisions to: sharply increase policy interest rates by 700 bps from 8^th April 2022 onwards, and to discontinue repayments of forex loans and interest from 12^th April 2022 onwards. In the meantime, the LKR continued to depreciate to a range of Rs. 364.23/377.50 against the USD by 12^th May 2022, at which point, the Monetary Board had apparently once again decided to “fix” the exchange rate at a new range between Rs.355.00/Rs.365.00 per USD. Such move to “fix” the exchange rate seems quite similar to the policy adopted by the Monetary Board chaired by Governor Professor W D Lakshman which “fixed” the LKR exchange rate at a range of Rs.199.00/203.00 per USD from 6th September 2021 onwards.  

It must of course be understood that there will always be conflicting opinions among stakeholders as to the value, timing and methodology to be followed in “fixing”, or “floating” or “pegging” a country’s currency. It is also quite possible that after decisions are taken to “float” or “fix” or “peg” the currency, others could, claim that the decision was right or wrong or implemented differently. However, it must be appreciated that the decision-making authority has to take its decision based on the prevailing circumstances, expert advice, practical ground conditions, judgement of future expectations and outcomes, etc. when viewed holistically. That is obviously why the Monetary Law Act provides the authority to the Monetary Board to change financial and monetary sector policies (including the exchange rate policy, interest rates, statutory reserve ratios, etc) when it deems appropriate to do so, from time to time.

It must also be appreciated that the implementation of policy measures is carried out by the professional and technical staff, of the Central Bank and they would naturally ensure that the policy measures being implemented are based on legal and binding decisions of the Monetary Board, which is the decision making authority, and not based on “unilateral” decisions of a single person.

A US Bank that had invested in a sovereign bond issued by Sri Lanka filing a lawsuit in a district court in Manhattan seeking settlement and interest would be a very unfortunate situation, said Leader of the Opposition Sajith Premadasa, addressing a meeting with a delegation of renewable energy at the Opposition Leader’s Office.

Accordingly, even foreign nations have made Sri Lanka a defendant before international courts, he pointed out, adding that the true nature of those so called economic super men has now been revealed.

The entire country has turned into one refugee camp, Premadasa went on, adding that the government that is numbed before the struggles of the people has turned Parliament invalid.

He reminded that the Prime Minister who questions the Samagi Jana Balawegaya’s move of boycotting Parliament today had sheltered the Rajapaksas by keeping his sole parliamentary seat vacant for an entire year.

MIAP

A heated exchange has occurred between Dudley Sirisena and Owner of the New Ratna Sahal Rice Company Mithrapala during a briefing held on the rice control price yesterday (22).

The heated exchange has occurred due to the comment made by the New Ratna Sahal Owner saying that Nadu rice cannot be sold for the control price declared by the government and that its price should be soared.

Sirisena, who is one of the key players of rice monopoly in Sri Lanka, went on emphasising that rice should be sold at the control price declared by the government and that further soaring of rice prices shall not be accepted.

Temper grown, Sirisena added that the point in which the ‘rice mafia’ existed up to this point can now be identified.

Despite the disagreements between the two rice tycoons on control price, it was well-evident during the briefing that the people are the ultimate victim of the games played between politicians and businessmen.

MIAP

Former MP Hirunika Premachandra responded to Social Media trolling on her breasts being exposed as she was picketing in front of Prime Minister Ranil Wickremesinghe’s residence yesterday (22) in a Facebook statement, saying that while trolls were busy making her breasts the centre of attention, another man has died at a queue.

“I am proud of my breasts! I breastfed three beautiful kids. I nurtured them, comforted them and dedicated my whole body for them,” the former SJB MP wrote.

She added: “I am sure people who make fund of my exposed breasts (due to the clash with the police) also sucked their mothers nipples until its raw when they were infants.

Anyway when you are done talking, making memes and laughing about my breasts, there was ANOTHER civilian died in a cue… Just so you know!“

MIAP

Former Chairman of the Ceylon Electricity Board (CEB) M.M.C. Ferdinando has been summoned to appear before the Committee on Public Enterprises (CoPE) today (23).

Accordingly, Ferdinando is expected to appear in the Committee today at 11 am.

Ferdinando’s comments at CoPE on an early occasion (June 10) raised controversy and the letter submitted by the former CEB Chief regarding the withdrawal of his comments was tabled by the CoPE Chairman recently.

Based on the letter, the CoPE concluded that Ferdinando be summoned to the Committee today.

Nevertheless, CoPE member SJB MP S.M. Marikkar told media that there is no legal validity to a statement made before the Committee being withdrawn via a letter.

MIAP