Expects rupee rise after FX control easing

Friday, 26 November 2010 01:33 - - {{hitsCtrl.values.hits}}

COLOMBO (Reuters) - Sri Lanka’s Central Bank said early this week it expects the rupee currency to appreciate with the relaxation of strict foreign exchange controls.

The island nation eased some of its forex curbs with effect from Tuesday to improve its post-war investment climate and boost faltering foreign direct investment.

“We expect the rupee will appreciate a lot more. The sentiment will be positive with the relaxation,” Central Bank Governor Ajith Nivard Cabraal told Reuters.

“Initially some money might go out, but it will be a lot more positive in the medium term.

Sri Lanka has taken the opposite tack of many Asian peers, who worry that the U.S. Federal Reserve’s plan to buy $600 billion in government bonds by June will flood their economies with hot money and prompt appreciation that hurts exports.

The Central Bank, which now maintains a 40-cent trading band in the rupee currency against the dollar to prevent rapid swings, will keep that policy in place despite the easing, Cabraal said.

“If we increase the range there will be high appreciation. So there will be a tight range and people will play around it. We are also ready to buy a certain amount of dollars when inflows pick up,” he said.

The relaxations include allowing foreigners to invest in rupee-denominated corporate debentures, making approvals to send money out easier and allowing foreign companies to open businesses in Sri Lanka.

Local companies will also have the right to invest in and borrow from foreign countries, up to certain limits.

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