Under the floating exchange rate regime, the Sri Lankan currency can no longer be regarded as a steadily and continuously depreciating currency. With the maturing domestic foreign exchange market, the exchange rate is now more responsive to, and determined through, market forces of supply and demand, while the intervention by the Central Bank is limited to mitigate excessive volatility in the market and to build up official external reserves. The stabilization of the Sri Lanka rupee utmost underlines the need for the export and import competing sectors to focus more on productivity improvements and market access in order to maintain external competitiveness. Instead of waiting for the exchange rate to depreciate and then for our businesses to become competitive, it is time for all of us to improve our productivity in whatever manner we can. The garment sector, I hear is trying to gain from higher productivity and also through cost efficiencies. How does inflation and productivity affect each other? Increased productivity is an important prerequisite to achieve low and stable inflation levels in the long-run. The lower productivity allows cost increases that flow through to product prices and thereby raises inflation. Therefore, the lower productivity growth thus represents a negative supply shock that generates inflationary pressures. In such context, it is necessary to pay due attention to improving the productivity in order to prevent potential inflationary pressure associated with high income arising from faster nominal growth and cost-push factors that raise the cost of production.
1  Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems  2 Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment  services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC 3 Directive 2009/110/ЕC of the European Parliament and of the Council of 16 September 2009 on the taking up,  pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC  2/2  BIS central bankers' speeches