Sri Lanka Central Bank CBSL dismissing the IMF statement on the country's exchange rate policy said that the exchange rate policy of the Central Bank has been consistent where Central Bank intervenes in both sides of the market to maintain stability while also allowing adequate flexibility The IMF - SBA mission that concluded their review this week in Sri Lanka had commended the significant macroeconomic achievements and stability of the economy and had indicated the need for more flexibility in the exchange rate with limited intervention by the Central Bank.
CBSL reacting to IMF, in a statement said that that the gross official reserves of CBSL has now reached the historically highest level of US dollars 8.1 billion, substantially above the desired levels and sufficient to cover 5.8 months of imports. So far during the year, the rupee has marginally appreciated against the US dollar and has depreciated against other major currencies; at rates of 4.7 per cent against Euro, 3.2 per cent against Pound Sterling; and 5.0 per cent against Yen.
During July and August 2011 Central Bank had to intervene in the foreign exchange market as there were some pressure mainly to absorb the proceeds of the sovereign bond of US dollars 1.0 billion and to ease some pressure attributable to significant increase in import demand particularly in the backdrop of increased oil imports.
" it is evident that significant inflows of foreign exchange are forthcoming on account of investments in various projects including in the areas of tourism, ports, and telecommunications, manufacturing and assembling industries as well as to the debt and equity markets".
CBSL statement added Inflows to the government to finance various infrastructure projects are continuing. Foreign remittance inflows as well as inflows to the services account, which includes earnings from tourism, port and airport services, continue to be strong. At the same time several commercial banks have also indicated that they would raise their Tier 2 capital and a part of that would come from foreign sources. These will lead to substantial increases in foreign exchange liquidity in the market.
Hence the Central Bank is of the view that its policy on exchange rate is appropriate in the circumstances and will continue to follow such prudent policy. CBSL said in its statement.