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Rupee plunge may send prices soaring
View(s):Import costs could rise on items like petroleum products and other essentials after Sri Lanka’s rupee took another beating against the US dollar this week. The US currency hit an all-time high of Rs. 135 (per US$) on Thursday, more than 7 per cent gain against the rupee since January this year when the dollar was pegged at Rs 126.
On the other hand, the Central Bank (CB) introduced restrictive motor vehicle import terms as a strong dollar hit all global markets and weakened other currencies particularly the Japanese Yen and the Indian rupee. The CB intervened in the market, injecting dollars resulting in the currency easing to Rs.134 on Friday.
“A weaker yen and a weaker Indian rupee means vehicles from those countries would be cheaper to the Sri Lanka market, which prompted the CB decision,” noted a local car dealer.
In a bid to stem increased imports, the CB with immediate effect on Tuesday imposed a minimum 100 per cent margin deposit requirement against Letters of Credit opened with commercial banks for the import of motor vehicles, other than buses, ambulances, lorries and trucks. Earlier there was no such compulsory requirement with banks deciding on their own on any such requirement and at what level.
The CB said the move was intended to reduce a possible acceleration of motor vehicle imports since the currencies of several trading partner economies have sharply depreciated against the Sri Lankan rupee.
In the local market, an outflow of dollars by foreign investors in bonds saw the dollar rise this week. A major portion — US$3.5 billion — of Sri Lanka’s foreign reserves is in bonds purchased by foreigners who have, in recent times, been repatriating some of this money for more favourable terms in US markets. However the Central Bank and dealers say there is no major outflow of funds and a strengthening dollar is due to external developments
Dealers say the US dollar has appreciated by 7.1 per cent against the Sri Lanka rupee since January. Overseas, in the past few months the Indian rupee has depreciated by 29 per cent and the yen by 17 per cent, respectively against the US dollar, which has reduced the import cost of cars from these two main supply centres.
The car dealer said the Maruti and Indica models, both manufactured by India’s giant Tata group, account for a majority of Sri Lanka’s low-end car market and the prices of these models could ease by 15-20 per cent due to the currency fluctuations, the dealer said adding, “that’s why the Central Bank is worried.”
However, he said imports from Japan are unlikely to see any significant rise compared to India because Japan deals with the middle and upper end of the market which is currently saturated.
Dealers said the falling dollar would have an impact on fuel imports by the Ceylon Petroleum Corporation (CPC) which spends around $400 million per month on its import needs.
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