Cabraal explains background to rupee float

Former Central Bank Governor Ajith Nivard Cabraal in a statement yesterday said the decision to float the rupee taken by the Monetary Board chaired by him is being continued by the current Central Bank governor and Treasury secretary.

The sudden manner is in which the rupee was floated on March 7 is now being criticised for the sharp depreciation of the rupee against the US dollar and the soaring prices in the economy. 

The Monetary Board on March 7, 2022 decided to allow the market to have a greater flexibility in the exchange rate, with immediate effect and communicate that the Central Bank was of the view that forex transactions would take place at levels that are not more than Rs.230 per US dollar.

“From the above it will be clear that while the Monetary Board had, as a market guidance, expressed its ‘view’ as to the level at which forex transactions would take place, a clear decision had been taken to allow for the flexibility of the Sri Lankan rupee in the forex market.

It would also be noted that from April 8, 2022 onwards, the Monetary Board, under the new governor and new Treasury secretary, have continued with the above exchange rate policy, without fixing a specified exchange rate, as was the case immediately prior to March 7, 2022,” Cabraal said in a statement explaining the background to the floating decision.