On Monday, President Mahinda Rajapaksa, delivering the 2012 Budget speech, said the rupee would be depreciated by 3 percent in order to uplift the export sector. This announcement surprised everybody, and dealers said the Central Bank too had not been in a position to give the market a direction during the closing hours of the day’s trading.
"As others have noted, this was probably a non-traditional way of adjusting exchange rate policy, but we don’t want to get hung up on the form when the substance makes good sense. We think the exchange rate adjustment was a step in the right direction and should help support Sri Lanka’s export competitiveness and safeguard its reserves over the medium term," Dr. Mathai told The Island Financial Review.
Earlier this year, the IMF recommended that Sri Lanka allowed more flexibility in its exchange rate management.
A large proportion of the country’s foreign exchange reserves is made up of debt and economists have pointed out that a sustained defence of the exchange rate by selling dollars to the market would not be a wise thing to do.http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=39664