Colombo: Sri Lanka needs to maintain a competitive exchange rate that would promote exports and not allow an over-valuation of the rupee that may reduce export competitiveness, the country's Central Bank has said.
The statement came as the rupee to the dollar fetched 152.37 yesterday, which analysts said was a record high.
The Sri Lankan currency throughout 2016 had depreciated by 10 per cent against the dollar.
"Maintaining a competitive exchange rate aimed at promoting Sri Lankan exports in the international market and attracting foreign direct investment to Sri Lanka will remain vital in promoting the country as a globally competitive export-led economy," the Central Bank statement said.
"If the exchange rate is overvalued/appreciated especially for a country like Sri Lanka, which continues to record a budget deficit and imposes significant tariffs on foreign trade, the budget deficit would further expand," the central bank said.
Central Bank said maintaining a stable exchange rate against the US dollar cannot be considered as a sustainable approach since this would lead to an over-valuation of the Sri Lankan rupee which would in turn reduce the competitiveness of exports.
Responding to opposition criticism that government's economic mismanagement was the reason for the falling rupee, deputy foreign minister Harsha de Silva who is also a leading economist in the government said domestic policies had nothing to do with the currency fluctuations in global markets.
"There will be ups and downs what we do is steer the economy to where it needs to go," he said.