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Top officials of the Ministry of Finance and Planning yesterday defended the government’s decision to depreciate the rupee by 3 percent overnight and said the Central Bank’s credibility was not at stake as the decision rested with the Minister of Finance, President Mahinda Rajapaksa.
The Central Bank had scoffed at calls to allow the rupee to depreciate in the face of severe import demand as it expected dollar inflows to improve towards the end of this year. But surprising many, the government the government announced in the 2012 Budget that it had decided to depreciate the rupee by 3 percent against the dollar.
The country’s money market was more concerned about the manner in which the depreciation was carried out at it seemed the monetary policy authority was overridden by the executive. Monetary policy and fiscal policy have to be independent of each other in order to ensure policy credibility.
Yesterday, Treasury Secretary Dr. P. B. Jayasundera, speaking at a post budget seminar organised by CA Sri Lanka, defended the government’s action.
"Export earnings and import savings depend on the exchange rate. What we achieved must be consolidated. The exchange rate regime remains independent, the Central Bank remains independent and the flexibility of the exchange rate is also independent, and it may appreciate again, but exporters and import substitution industries need a direction. We need to balance the bond market versus the export industry, but the government needs to give a direction that it is for an export oriented policy. I am confident that the overall consistency in the direction where the country needs to head has been given in this budget," Dr. Jayasundera said of the exchange rate action.
"Economic growth will not be compromised and inflation objectives would not be compromised. This has been established during the last two years where the real economy has grown much more rapidly than the rate of inflation," he said.
The Treasury Secretary said the 2012 Budget attempted to uplift the export sector.
"Taxation of exports is basically not there. Taxation of materials for exports is completely exempted. Certain indirect taxes affecting exports have been phased out. Taxes on technology and machinery have been phased out. But this is not all. We have further refined this policy direction," Dr. P. B. Jayasundera said with reference to the depreciation of the rupee.
The exchange rate issue was brought up again in the evening when top officials of the Treasury convened a press conference to explain the budget.
"The Central Bank’s credibility is not an issue because it was the decision of the Minister of Finance under whose purview the Central Bank and Treasury function. The decision to depreciate the rupee was taken and announced at the right time, because the government is on an export development drive," Department of Public Enterprises Director General S. R. Attygalle said.
When asked whether the exchange rate was adjusted in the manner it was because of the reported tension between Central Bank Ajith Nivard Cabraal and Treasury Secretary Dr. P. B. Jayasundera, Attygalle said there were no problems between the two officials.
The Treasury’s National Planning Director General B. M. S. Batagoda said it was in appropriate to focus on an isolated issue.
"We need to look at the broader picture and the direction the budget intends to drive the economy to," he said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=39665
The Central Bank had scoffed at calls to allow the rupee to depreciate in the face of severe import demand as it expected dollar inflows to improve towards the end of this year. But surprising many, the government the government announced in the 2012 Budget that it had decided to depreciate the rupee by 3 percent against the dollar.
The country’s money market was more concerned about the manner in which the depreciation was carried out at it seemed the monetary policy authority was overridden by the executive. Monetary policy and fiscal policy have to be independent of each other in order to ensure policy credibility.
Yesterday, Treasury Secretary Dr. P. B. Jayasundera, speaking at a post budget seminar organised by CA Sri Lanka, defended the government’s action.
"Export earnings and import savings depend on the exchange rate. What we achieved must be consolidated. The exchange rate regime remains independent, the Central Bank remains independent and the flexibility of the exchange rate is also independent, and it may appreciate again, but exporters and import substitution industries need a direction. We need to balance the bond market versus the export industry, but the government needs to give a direction that it is for an export oriented policy. I am confident that the overall consistency in the direction where the country needs to head has been given in this budget," Dr. Jayasundera said of the exchange rate action.
"Economic growth will not be compromised and inflation objectives would not be compromised. This has been established during the last two years where the real economy has grown much more rapidly than the rate of inflation," he said.
The Treasury Secretary said the 2012 Budget attempted to uplift the export sector.
"Taxation of exports is basically not there. Taxation of materials for exports is completely exempted. Certain indirect taxes affecting exports have been phased out. Taxes on technology and machinery have been phased out. But this is not all. We have further refined this policy direction," Dr. P. B. Jayasundera said with reference to the depreciation of the rupee.
The exchange rate issue was brought up again in the evening when top officials of the Treasury convened a press conference to explain the budget.
"The Central Bank’s credibility is not an issue because it was the decision of the Minister of Finance under whose purview the Central Bank and Treasury function. The decision to depreciate the rupee was taken and announced at the right time, because the government is on an export development drive," Department of Public Enterprises Director General S. R. Attygalle said.
When asked whether the exchange rate was adjusted in the manner it was because of the reported tension between Central Bank Ajith Nivard Cabraal and Treasury Secretary Dr. P. B. Jayasundera, Attygalle said there were no problems between the two officials.
The Treasury’s National Planning Director General B. M. S. Batagoda said it was in appropriate to focus on an isolated issue.
"We need to look at the broader picture and the direction the budget intends to drive the economy to," he said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=39665
