Sri Lanka rupee will be taken to Rs270 to dollar: President

President Ranil Wickremesinghe of Sri Lanka has announced that the country's rupee will be strengthened to 270 against the US dollar. This declaration comes during the president's visit to the hill country, following his previous statement in March that the currency would be bolstered to 280 against the US dollar by June.

"The rupee is strengthening now," President Wickremesinghe remarked to a member of the public who raised concerns about high fertilizer prices during his inspection of Sri Lanka's Pekoe Trail on a tea estate in Pussellawa. "We will take it to 270. Then you can buy more for the rupee."

The Sri Lankan central bank can appreciate the rupee by implementing deflationary monetary policies, such as selling down its securities portfolio to absorb liquidity and purchasing dollars at slightly stronger rates through its ad hoc peg exchange rate policy. However, recent days have seen excess liquidity building up in money markets, primarily due to inflationary operations. On Tuesday, net excess liquidity amounted to 138 billion rupees, with banks borrowing significant sums through various channels.

Analysts have advised the central bank to allow some excess liquidity to remain from dollar purchases and refrain from injecting additional money through domestic operations to prevent over-trading by banks. Sri Lanka's central bank has historically mismanaged the rupee's value through inconsistent policies, leading to depreciation and economic challenges.

President Wickremesinghe has been persuaded by macro-economists to target up to 7 percent inflation under a new monetary law, allowing the implicit printing of money for growth. However, analysts caution that Sri Lanka lacks a consistent monetary regime and has faced currency crises despite low inflation rates. In recent years, the central bank has allowed the exchange rate to appreciate, leading to improved inflation outcomes.

Critics argue that the current trend of claiming exchange rates are 'market determined' neglects the fundamental attributes of money as a store of value and a reliable measure for future payments. They highlight historical precedents where parliaments exercised substantial control over central bank operations to prevent arbitrary expansion of money supply or currency depreciation.