Disputing the grim forecast of Sri Lanka’s exchange rate by Fitch Solutions by the year-end, Central Bank Governor Dr. Nandalal Weerasinghe raised concerns on the basis of the forecast while stressing that such long-term predictions on exchange rate are not prudent.
Fitch Solution recently maintained its forecast for the rupee to weaken to a record low of 390 per dollar by the year-end despite the positive prospects of the country securing the US$ 2.9 billion International Monetary Fund (IMF) bailout package.
Dr. Weerasinghe noted that annual debt service obligation to the tune of US$ 6 billion until 2029 has been one of the assumptions of this forecast. However, he stressed that such a high figure of foreign debt servicing is unlikely given that the country is engaged in debt restructuring negotiations.
Further, he opined that such a long-term prediction on an exchange rate of a currency is not practical.
Referring to the recent appreciation of the rupee, he remarked that the market will adjust to a new rate and if the need arises, the CB stands ready to intervene in the forex market in a limited capacity.
“We have a small market, that’s why the exchange rate fluctuates a lot. That’s why the CB is required to intervene in the market to a certain extent. However, the CB would not act against the direction of market forces,” he stressed.
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