The Sri Lankan rupee will appreciate once the inflow of foreign exchange begins from the SWAP agreements provided to foreigners who invest in government securities, Money and Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal told Parliament yesterday.
Cabraal made the remark in response to a question raised by SJB MP Dr. Harsha de Silva, on the decision made by the Cabinet to set off any exchange losses that may occur due to depreciation when transferring profits with the Central Bank.
“Does the Central Bank have the capacity to bear such a burden?” Dr. de Silva asked, adding that there is going to be hedging involved in this process. “Therefore, I would like to know as to who would carry the burden of the SWAP?” Dr. de Silva questioned.
State Minister Cabraal responded that the operations manual had clearly stated how the SWAP agreements would go forward, and said there is something called Zero Coupon SWAP.
Cabinet on Monday gave approval to a proposal to grant US dollars/Sri Lankan rupees buying and selling exchange facilities to the Central Bank of Sri Lanka.
In the case of depreciation of the exchange rate of the US dollars/Sri Lankan rupees during the implementation of this measure, CBSL will compensate the loss incurred to the Central Bank of Sri Lanka when transferring its dividends to the Treasury in the future, as the loss that could be incurred to the Central Bank of Sri Lanka enable to consider as a cost to the Treasury, the Government said.
(FT)