Financial Times

When will the dollar hit 100?
The rupee has depreciated sharply, down by over four rupees since last November, when President Chandrika Kumaratunga's sudden takeover of three ministries created political instability, prompting market watchers to wonder when it would hit Rs 100 to the dollar.

The dollar closed at 98.99 rupees on Friday and economists warned that its rapid slide in recent times could fuel inflation in the import-dependent economy.

The rupee had been quite stable against the dollar for much of 2003, even appreciating in the latter half of the year, particularly in September, but began to slide after the seizure of ministries last November which the market now refers to as "4-11" after the September 11 terrorist attacks in the U.S.

On November 4, 2003 the rupee was 94.67 against the dollar. It had fallen by about 4.5 percent since then up to last Friday. The rupee depreciated by a mere 0.01 percent against the dollar in 2003, compared to a fall of 3.7 percent and 11.3 percent in 2002 and 2001 respectively. "During the uncertainty that prevailed after the takeover of ministries, the dollar's rise continued. Before that the rupee had been appreciating," a foreign bank dealer said.

Foreign exchange dealers declined to speculate when the dollar would cross the Rs 100 mark, saying market forces would decide the fate of the currency. Foreign exchange dealers said the depreciation of the rupee would help increase the rupee value of Sri Lankan exports and benefit exporters, making their products cheaper in the world market against the competition.

However, it would also raise the costs of imports, particularly petroleum and food. "When petroleum prices are going up that can have a broad impact on our economy," a dealer said.

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