Seychelles rupee feels impact of Greek crisis
The Central Bank of Seychelles (CBS) is closely monitoring the impact that the Greek financial crisis is having on markets across Europe, Asia, the United States and as far as Australia.
The crisis has not left small economies like that of Seychelles unscathed, the bank said in a press release yesterday.
Its impact has been particularly pronounced on foreign exchange markets, with the euro last week hitting a four-year low against the US dollar when it reached $1.21/€.
With the US dollar being the intervention currency for the Seychelles foreign exchange market, the sharp appreciation of the dollar against the euro has inevitably affected the Seychelles rupee in an important way, the CBS said.
Over the past three weeks or so, the rupee has depreciated by as much as 47 cents, or 3.9%, against the dollar on the one hand, while it has appreciated by 62 cents, 3.9%, against the euro. With the dollar also strengthening against the pound sterling, the rupee has gained against sterling too.
Caroline Abel, head of policy, market operations and statistics at the CBS said: “If this trend continues it could have some negative impact on the domestic economy.
“On the one hand, a strengthening of the rupee against the euro would adversely impact the income of foreign exchange earners, such as local tourism operators, and also affect the sector’s competitiveness as most of our tourists are Europeans.
“On the other hand, most of Seychelles’ import bills are in US dollars, and as such a weakening of the rupee against the dollar would mean that we need more rupees for the same amount of imports. This could cause an increase in the general price level – ie inflation.”
Under the bank’s exchange rate policy, the rate is determined by market forces. However, in the context of the economic programme with the International Monetary Fund, the Central Bank can intervene in the foreign exchange market “to smooth out excess volatility and ensure orderly market operation”.
Miss Abel said: “At this stage we consider the situation in Europe as a temporary occurrence and we expect the euro to recover somewhat in the near future as markets settle down.
“Based on this analysis, we have not deemed it necessary to intervene, but if this trend is not reversed and the rupee continues to slide against the dollar, then the CBS will review its position on this.”
Stressing that price stability is the bank’s primary objective, she added that “the CBS will take whatever steps are required to contain inflation”.
Source: NATION 5-25-10