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Sri Lanka says downgrading by ratings agency unwarranted

03-01-2012 14:04 BJT

COLOMBO, March 1 (Xinhua) -- Sri Lanka said Thursday that the downgrading of its foreign currency rating outlook by an international rating agency was unwarranted.

The Sri Lankan Central Bank said in a statement that the government and the bank have taken the necessary measures that would strengthen Sri Lanka's performance on the fiscal front, the monetary front and the external front.

Standard & Poor's (S&P) revised Sri Lanka's foreign currency rating outlook from 'positive' to 'stable' and lowering the country's long-term local currency rating from BB- to B+ on Wednesday.

"We revised our outlook on the long-term foreign currency rating to reflect the country's deteriorating external liquidity, " S&P's credit analyst Takahira Ogawa said in a statement on Wednesday.

"We also lowered the long-term local currency rating to the same level as the foreign currency rating to reflect the country' s lack of track record in having a floating exchange rate regime and its still-developing secondary market for debt instruments."

However the Sri Lankan Central Bank said the Sri Lankan economy is estimated to have grown by around 8.3 percent in 2011 recording the second consecutive year with an annual growth rate of 8 percent or above for the first time in the post-independence history.

It also noted that year-on-year inflation has remained at single digit levels in the last 37 months, and in February 2012 inflation fell to 2.7 percent.

With effect from February 2012, the Central Bank of Sri Lanka has intervened in the foreign exchange market mainly for the partial settlement of oil bills.

The policy change resulted in the rupee depreciating by 5.1 percent against the U.S. dollar during the period from 9 February 2012 to 28 February 2012.

The bank said the depreciation of the rupee is however expected to have a contractionary effect on imports, while foreign fund inflows are likely to be encouraged.

It also noted that the financial viability of the state-owned Ceylon Petroleum Corporation and Ceylon Electricity Board, both which were running at a loss, is also expected to improve significantly in the period ahead.

Such measures too, would help the government to consolidate its fiscal position further, the Bank added.

Editor:Zhang Jianfeng |Source: Xinhua

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