Currency depreciation and oil prices

Currency depreciation not being transmitted to rupee price when the international oil price falls – I refer to the news report where the Petroleum Development Deputy Minister Anoma Gamage had promised not to follow the previous practice of not reducing the domestic oil price when the world oil price falls. 

This previous practice was justified by the Government on the ground that it had subsidised the domestic price previously when it had risen in the world market and thereby borne the loss which had to be recouped from the Budget.

To avoid such failure on the part of our populist politicians to follow international prices over which we have no control, I suggest we fix the oil price in US dollars but accept payment in rupees at the official exchange rate. This will not be objectionable by the Central Bank since the payment will be in rupees. 

The oil price may be revised every month or once in two months, depending on its volatility in the world market. Let our people understand the underlying economic realities of political decisions. 

– R.M.B. Senanayake