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Rupee plunges, driving prices up
View(s):A continuously weakening rupee to the US dollar may lead to a price spiral in essential food items, the trade warned yesterday.
However, Central Bank Governor Ajith Nivard Cabraal claimed on the telephone from Washington where he is on an official visit “it was not really right to say so”.
“With the increase of the dollar rate, we have to pay high prices for goods at the time of import,” said K. Palaniyandan, President of the Colombo Traders’ Association. “This applies even to commodities for which we opened Letters of Credit some weeks ago. At the time of delivery, we have to pay at current rates.”
Among the imported food items are onions, dhal, sugar, rice, tinned fish and milk powder. A wide variety of other goods, including hardware, are also likely to go up in price. “Although our costs have gone up, we cannot immediately increase prices because the market is already flooded with imports,” Mr. Palaniyandan said. “We are still keeping about a rupee or two profit margins in the wholesale market.”
On Friday, the buying price of the dollar was Rs. 129.95 and selling price 133.15 at close. The rupee has fallen sharply since June 7, when a rise in US treasury yields prompted foreign investors to pull out of Sri Lanka’s treasury bond market. Currency dealers expect the rupee to keep on depreciating unless the Central Bank steps in with tightening measures. But Governor Cabraal said they would not intervene.
“It’s not really right to say prices will go up,” he said in a telephone call from Washington. “Even if the rupee has slightly depreciated against the dollar by about 3 per cent, it has gained substantially against the sterling pound, the yen, the Indian rupee and the Australian dollar.”
Currency dealers have said that one of the main reasons for the rupee’s fall is high demand for dollars from importers. But Mr. Cabraal said some traders were saying this “to get a devaluation.” “Trade also takes place from Japan and India and there has been appreciation of the rupee against both those currencies,” Mr. Cabraal explained.
He shot down fears that food items would become more expensive. “The main food items are grown here. Only a few items like apples and grapes are imported. Also, sugar, but sugar prices worldwide have dropped.”
“Inflation won’t get adjusted,” he continued. “There are 373 items in the (Colombo Consumers Price Index) basket. A few will go up in price but a few will go down. The overall impact will be neutral. If it is neutral, there is no need to intervene.”
Meanwhile, vehicle importers said their prices were also set to rise. “We are worried because, even though we opened LCs some time ago, we have to pay much more to take delivery of the vehicles,” said Dhammika Peiris, Secretary of the Vehicle Importers’ Association of Sri Lanka. “Added to this, the vehicle market is also slow now.”
Sampath Merenchige, President of the Vehicle Importers’ Association of Lanka, said sales were regular at present but agreed that prices would increase.
In June, Mr. Cabraal was quoted as saying that a weakness in Sri Lanka’s rupee was a “logical adjustment”. Mr. Cabraal said yesterday he could not predict whether the rupee would continue to weaken against the dollar. “We don’t know,” he asserted. “Worldwide currency markets are so volatile, nobody can predict what will take place.”
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