By Rathindra Kuruwita
The appreciation of Sri Lankan rupee against major foreign currencies alone was not an indication of economic stabilisation, H M C G Bandara, Senior Lecturer at the Sabaragamuwa University says.Bandara said that exchange rates, interest rate and inflation had become hot topics and the public used that to gauge the health of the economy.
“Yes, the inflation has dropped from 70 percent last year to about 25 percent in May. The rupee has rallied against the US dollar and interest rates are coming down. People ask why petrol prices have not decreased. Inflation is the rate of increase in prices over a given period of time, but a lot of people assume that when inflation goes down
the prices will drop immediately. Inflation is still at about 25 percent,” he said, adding that the current discussion on the state of the economy revolved almost exclusively on price.
“If you look at the exchange rate, the simplest explanation is that the value of the dollar, compared to the rupee, changes due to the demand for the dollar and the supply of the dollar. From 2021, we kept running out of dollars because we had to service external debt. Then we restricted imports for over 1,450 goods. Among them were items that were needed to run the economy,” he said.
Thus, the demand from the consumer and manufacturing sector decreased, relieving the pressure on the dollar. Simultaneously, income from tourism and remittances increased.
“Therefore, the demand for the dollar lessened while some money started coming in. This, however, is not an indication that the economy has strengthened. Some of our industries have collapsed. Look at our construction industry and the Small and Medium Enterprises. Millions of people who depended on these sectors are in trouble,” he said.