Oil Prices does it a scape goat

By Thilina Samarasinghe

Currency crises have nothing to do with oil prices. That is a blatant lie told by central bankers and government officials to innocent citizens who do not understand monetary policy.
It is as much a lie as saying oil prices cause inflation.
Hedging cannot 'save' foreign exchange either. Hedging is about fixing prices and giving certainty. Any 'profits' from hedging that is passed on as a subsidy will have no effect on the forex market.
Oil prices of course can worsen a crisis with subsidies which hurt the budget and cause money printing. High interest rates from a budget deficit can also slow an economy or cause bank loan defaults.
Standard & Poor's which upgraded our rating 'outlook' based on a promise to market price energy, despite an on-going war, said out loud that Sri Lanka's problems were more to do with economic policy and budgets rather than war.
But now our clever politicians are saying energy prices will not be raised.
The budget is usually the initial trigger for currency crises in Sri Lanka, but the drying up of tsunami aid flows – which had earlier pushed economic activity to a higher clip – may also be a cause.