LKR: Appreciation To Be Capped In H210

In line with our expectations, the Sri Lankan rupee has edged steadily upwards in 2010 on the back of a stronger external balance sheet, fiscal improvements, and solid economic recovery momentum. Going forward, the central bank's inclination to support economic growth - as evidenced by the recent decision to cut the policy rate by 25bps to 9.25% - suggests that significant appreciation is likely to be capped. With this in mind, we are sticking to our end-2010 FX target of LKR112.00/US$.

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