Monetary Board following same policies as before – Cabraal | Daily News

Monetary Board following same policies as before – Cabraal

Nivard Cabraal
Nivard Cabraal

Former CBSL Governor Ajith Nivard Cabraal acknowledged that there existed allegations against him for fixing the exchange rate above the market clearing rate preceding the period the government ceased debt repayment. He claimed that this was a suitable policy and that his detractors were politically motivated and weren’t raising the issue that the current policy is a continuity of the previous policy just at a lower exchange rate.

Cabraal was speaking to WION News and others alongside the promotional campaign for his new book recently. Cabraal further attributed the high inflation in the country to the allowance by the monetary board to let the currency depreciate so sharply in a short period.

Cabraal noted that it was his predecessor Prof W D Lakshman that had established the peg at a certain rate. He said “The Rupees were fixed during my predecessor’s time in September 2021. When I came in, I maintained that same policy with the approval of the Monetary Board until March 2022.”

He noted that with economic stresses there were calls to allow the peg to depreciate. In defence of his move not to let the currency move he said, “Some people said you should let it go, but are they taking responsibility for the inflation that is taking place?”

He further added that in certain areas where the Monetary Board felt it was appropriate there were allowances for the currency to depreciate. He said, “When I left the Rupees was already at Rs 299, at that stage the new man came, and it is now at Rs 371.”

Cabraal asked his detractors to raise as much concern that they are having against him towards the current policy stance. He said, “For the last six months it has been held firm again. Why aren’t they talking about that? From May 12, 2022, up until now, it has been fixed once again. It is fixed between Rs 360-Rs 370.”

Cabraal further ridiculed the rationale that a lower exchange rate would bring in foreign inflows. He said, “(Even after massive depreciation), no new inflows are coming.”

Cabraal called on the Monetary Board to reset the rate at a higher value against the USD. He said, “In my book, I am suggesting that you fix it but at a lower rate.”

With the advent of large debt haircuts, Sri Lanka’s debt to GDP will reduce drastically alongside the new capacity for the country to increase borrowings. There is scope for the exchange rate to appreciate in this instance. He said, “If you are going to fix it, then fix it at a lower rate.”

Sri Lanka is yet to implement even the most basic forms of capital controls with large degrees of trade happening with flows that can’t be reconciled with the capital flow policies outlined by the Central Bank. Large quantities of milk powder have arrived in the country with no means to explain how they have been purchased.

The most effective course of action not involving legal consequences for those aiding capital flight is to set the exchange rate slightly below the market clearing rate by using the Central Bank as a net purchaser of foreign currency as was done under the tenure of Dr Indrajit Coomaraswamy. (TP)

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