The Hon. Harsha de Silva

¶ 01 Madam, I asked for 36 minutes! At least give me one more. Anyway, I will say what I can in three.

¶ 02 Hon. Deputy Chairperson, our foreign exchange market is caught in a vicious cycle. We can talk about the Iran war and the Strait of Hormuz; these matter globally. But by yesterday our rupee fell very fast.

¶ 03 Markets run on confidence. When confidence breaks, markets break. That is true for the forex market and the rupee market. Today, at Bank of Ceylon, the dollar sell rate is Rs. 354. Where will this stop? We can make academic arguments, but there is a difference between classroom theory and how markets work.

¶ 04 Having worked in markets, I see the other side: you must build confidence. If the dollar moves to Rs. 340, 350, 360, it affects the whole country. Think about your management of this. How do you give the market confidence? I heard the President say, “I will not let this country fall.” That is good, but it is not enough for markets. Markets are not political; they need to see what is actually happening.

¶ 05 What is the vicious cycle? Exporters are not converting dollars to rupees because they expect the rupee to weaken by Rs. 2–3 tomorrow. Importers are scrambling to buy dollars immediately because they have LCs open and shipments due next week. If next week the dollar is Rs. 375, better to buy at Rs. 355 today.

¶ 06 Madam, do you know there is no single market rate today—no single bid or offer across the market? How can that be? The only trades are what the Central Bank is doing. You cannot run a market like that. How can we attract investors to Port City or elsewhere if there is not even a firm two-way quote?

¶ 07 Therefore, please understand there are things you can do to rebuild market confidence. I will say something that may not be pleasant: by next week, interest rates might have to go up by at least 50 to 100 basis points, because the market does not trust the Government. Political speeches are not enough. If policy rates go up, Government interest costs and people’s borrowing costs also go up.

¶ 08 I will conclude. Do not let this slide. Use proper market intelligence. Let the President do politics; you—Finance Ministry, Treasury, Central Bank—must state clearly what you will do to restore market confidence. Otherwise, this vicious cycle will worsen. Thank you.