Central Bank once again rules out rupee float
The Central Bank has once again rejected proposals by government experts to float the rupee against the US dollar rate and allow it to stabilise at market demanded rates instead of managing its fluctuations.
With such a refusal by the banking regulator the Finance Ministry would have to pursue other internal options to mitigate the impact of the forex crisis, according several official economic advisers.
Senior advisors had conveyed to Finance Minister Basil Rajapaksa the need to float the rupee and peg it at a higher rate, a move the Central Bank has vigorously opposed in the past and also this week when this proposal was mooted in internal government circles.
In an email response to the Business Times, Central Bank Governor Ajith Nivard Cabraal categorically stated that there was no decision to float the rupee or to allow IMF intervention to tackle the forex crisis by suggesting economic reform programmes including any move of floating the rupee.
The Finance Ministry has been looking at options to tackle the present rapid depletion of foreign reserves, economic downturn and cash flow issues as soon as possible even by suggesting a new hike of 200 – 300 basis points in bank policy rates and floating the rupee ending exchange controls, reliable sources said.
The Central bank is now maintaining the exchange rate at Rs. 203 per dollar but unofficial market rates are already around Rs. 240/250 to a US dollar and seen rising to Rs.300.
Under the present dollar crisis, the Central Bank has no option other than float the rupee without defending it to protect the cost of living and import prices, a former finance ministry secretary told the Business Times.
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