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It is a fallacy to say value of currency is bellwether of strength of economy: Mangala Samaraweera

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Finance and Mass Media Minister Mangala Samaraweera has observed over the years there has emerged a fallacy that the value of the currency is a bellwether of the strength of the economy. Value of the Rupee is determined by the foreign exchange market, where value is determined by supply & demand.

He made this observation speaking in parliament. He stated that although some people try to show the depreciation of the rupee as a fall in the economy, the economic indicators remain strong. The primary determinants of the demand for currency are exports and imports of goods and services and net capital flows.

He went on that in Sri Lanka's case these base indicators remain positive and are moving in the correct direction. Exorts in 2017 reached US$ 11.3 billion, and when net services exports are considered this figure reaches US$ 15.8 billion. The government has taken timely and prudential measures to control imports growth, especially vehicle imports, which is a major outflow of Sri Lanka's foreign exchange. The currency depreciation against strengthening dollar is not limited to Sri Lanka. From January 1st 2018 till the 18th of Sep 2018, LKR Rupee had depreciated by 7.4%.The Indian Rupee depreciated by 13.5%, Pakistani Rupee by 12.1%, Indonesian Rupiah by 9.5%, Russian Ruble by 18.2%, Brazilian Real by 24.8%, Turkey by 68% & Argentina 112%. A further depreciation of rupee can be expected in the future. It is clear that Sri Lanka is by no means the only country subjected to the phenomenon of capital moving of all the frontier and emerging market economies. If we are to remain integrated with the global economy and sell our exports, attract FDI and engage in capital markets, we will certainly be exposed to such volatility.

He concluded that under the current global conditions, it is imperative to build up the safeguards and resilience to be able to meet up to such volatility and further consolidate macroeconomic stability, to provide confidence to global capital markets and towards this end the government has taken the appropriate steps.

 

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