Rupee fell by 10 % vs the dollar upto Oct.8

The Sri Lankan rupee has depreciated by 10.2 per cent against the US dollar in the year up to October 8, the Central Bank (CB) said this week.

Furthermore, reflecting cross currency movements, the Sri Lankan rupee depreciated against other major currencies except for the Indian rupee during this period. The weakening of the Sri Lankan rupee against the US dollar mostly reflects a broad-based strengthening of the US dollar globally.

In its usual monthly assessment of the country’s economic performance, the CB in a media release said that Sri Lanka’s external sector recorded a moderate performance in July 2018.

The trade deficit continued to widen in July (year-on-year) with higher import expenditure despite export earnings surpassing US$1 billion during the month. Earnings from tourism recorded a modest growth while workers’ remittances declined marginally, on a year-on-year basis, during the month. The financial account recorded moderate inflows during July, while requirements of debt servicing and other outflows resulted in a decline in gross official reserves to $8.4 bil- lion as at end July 2018. “The foreign exchange market continued to be under pressure with outflows of foreign investments from the government securities market and increased foreign exchange demand for imports thus necessitating intervention by the Central Bank to curtail intraday excess volatility in the exchange rate,” the release said.

The deficit in the trade account continued to expand in July in comparison to July 2017 due to higher growth in imports. On a cumulative basis, the deficit in the trade account widened considerably during the first seven months of 2018 in comparison to the corresponding period of 2017.

Earnings from exports increased by 5.7 per cent (year-on-year) to $1,073 million. Earnings from industrial exports contributed to increased export earnings while agricultural and mineral exports recorded poor performance during the month.

While export earnings from tea declined due to the drop in both prices and volumes exported, earnings from coconut declined owing to the reduction in all kernel categories as a result of lower export volumes despite higher prices reported for these products.

Expenditure on merchandise imports increased by 10.3 per cent (year-on-year) to $1,754 million in July.

The increased expenditure in all major import categories, on a year-on-year basis, as well as the effect of the low base in 2017, contributed to this growth.

Consumer goods imports increased mainly due to higher imports of personal motor vehicles, particularly cars with less than 1,000 cylinder capacity (cc), hybrid and electric motor cars. To curb imports of small vehicles, taxes applicable on these categories were revised upward with effect from August 2018. Further, a 100 per cent margin deposit requirement against letters of credit on non-commercial vehicle imports was imposed with effect from September 19. “Considering the continuous pressure on the BOP from increased imports, the government and the Central Bank implemented further measures to restrict the importation of vehicles and certain non-essential consumer goods,” the CB said.