Read what a veteran Central Banker, WA Wijewardena has written about the outlook of LKR.
The ominous Black Swan has hit India, bringing enormous risks to that country today. Sri Lanka should avoid the inevitable Black Swan Event by shedding its high growth objective for the time being by raising domestic interest rates and saving its currency.
With all due respect to veteran Central Banker WA Wijewardena, what is happening in India (in my humble opinion) is not a Black Swan event.
A black swan event is a totally unexpected phenomenon which comes out of the blue.
When the Fed went into the QE program, everyone knew that it would end one day. it was not going to be forever.
Please listen to Interview on Bloomberg on 29th August 2013 with Jagdish Bhagwati, Professor of Finance & Economics at Columbia University, New York. He is an India Expert who was a classmate of Manmohan Singh at Cambridge University.
Veteran Banker WA Wijewardena points out some very important facts in his article. we have to deal with the unholy trinity (BOP/ Current Account deficits), Interest rate & exchange rate.
we have to do a delicate balancing act.
I have heard that Interest rate cut is coming soon. Cabraal's mandate is to spur GDP Growth.
We simply cannot afford to allow the Rupee to devalue / depreciate. (think debt repayments, crude oil). We cannot afford imported Inflation which is already high. people in the villages are buying milk powder by the teaspoon.we have to cut down / discourage unneccesary imports (increase margin & duty). we can support special export sectorby giving tax incentives to help them compete internationally. cut down waste, corruption in state sector & privatize SOE's.
In case of increasing outflow, surely we can get help from the Chinese to prop up our Reserves ? They have Trillions of USD. All we need is a few Billion. Rupee - USD Swap with Chinese ?!
China has a strategic Interest in Sri-Lanka.
It is good that it is a Wet Year.
A black Swan event for Sr-Lanka is if Crude Oil goes to usd 200 a barrel due to Syrian crisis.
In the future, if Tourist dont come as expected, the integrated tourism / casino's concept does not work out as planned etc could be very problematic. (but their are billions of chinese !).
Oil & gas could be a positive future Black swan !