Sri Lanka expects market stability as imports reduced

Colombo, May 12 (IANS) The Sri Lankan Central Bank said Saturday that it expects stability in the domestic foreign exchange market over the next few weeks following a decision to reduce the volume of imports.

Exchange rates have been on shaky ground so far this year after the bank depreciated the value of the Sri Lankan rupee as against the US dollar, reported Xinhua.

Last month the Sri Lankan rupee fell 0.6 percent to a new record low of 132.20 to the US dollar surpassing its previous all-time low of 131.60 recorded in March.

Market dealers attributed the drop to importers' demand for dollars and the Central Bank said measures have now been taken to reduce imports which in turn will help stabilize the foreign exchange market.

The bank said that international oil prices have recently declined and if that continues then pressure on the domestic foreign exchange market is likely to lessen markedly.

"The expected deceleration in the volumes of imports during the course of the year 2012 following the measures taken by the government and the Central Bank earlier this year will also significantly reduce pressure on the domestic foreign exchange market," the bank said in a statement.

At its monthly monitory policy board meeting Friday, the Central Bank decided to keep its repurchase rate at 7.75 percent while the reverse repurchase rate will remain at 9.75 percent.

The bank said that while inflation continues to remain at single-digit levels, the outlook for domestic food supplies remains favourable, which augurs well for domestic prices in the period ahead.

It also said that improvement in the supply of domestic agricultural products over the last few years has continued to help stabilize domestic consumer prices.

Market interest rates have moved up gradually in Sri Lanka over the past couple of weeks and the Central Bank says this reflects the tightening of monetary conditions.

The Monetary Board of the Central Bank was of the view that the policy measures implemented thus far are sufficient to moderate the expansion of both credit and the trade deficit.