Sri Lankan Rupee falls

currency     A continuously weakening rupee to the US dollar may lead to a price spiral in essential food items, the trade warned yesterday.
However, Central Bank Governor Ajith Nivard Cabraal claimed on the telephone from Washington where he is on an official visit “it was not really right to say so”.

“With the increase of the dollar rate, we have to pay high prices for goods at the time of import,” said K. Palaniyandan, President of the Colombo Traders’ Association. “This applies even to commodities for which we opened Letters of Credit some weeks ago. At the time of delivery, we have to pay at current rates.”

Among the imported food items are onions, dhal, sugar, rice, tinned fish and milk powder. A wide variety of other goods, including hardware, are also likely to go up in price. “Although our costs have gone up, we cannot immediately increase prices because the market is already flooded with imports,” Mr. Palaniyandan said. “We are still keeping about a rupee or two profit margins in the wholesale market.”

On Friday, the buying price of the dollar was Rs. 129.95 and selling price 133.15 at close. The rupee has fallen sharply since June 7, when a rise in US treasury yields prompted foreign investors to pull out of Sri Lanka’s treasury bond market. Currency dealers expect the rupee to keep on depreciating unless the Central Bank steps in with tightening measures. But Governor Cabraal said they would not intervene.

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