In a recent Reuters’ article by George Thande - Seychelles devalued its rupee against the dollar in a move which the Central Bank of Seychelles said was designed to bring greater stability and competitiveness to the economy.
It also increased the minimum interest rate paid on bank deposits such as saving accounts to 3.5 percent from 2.5 percent, saying this move should “encourage more people to save their money and reduce the demand for foreign exchange”.
The change in interest rate will be effective on December 1 to give commercial banks a two month window to adjust their portfolios, it added.
The central bank said it would also continue the process of foreign exchange liberalization begun a year ago.
The reforms have resulted in a fall in so-called pipeline deposits, or a backlog of requests from commercial banks for foreign exchange, the statement said.
The bank said pipeline deposits today stood at 100 million rupees compared to 452 million rupees in October 2006, when the liberalization programme started and the rupee was at 5.5 against the dollar.
In the statement, Central Bank Governor Francis Chang Leng acknowledged the exchange rate change, devaluation, would probably result in some price rises, but said the current prevalence of black market rate imports would limit them. The inflation rate was 2.3 percent in September.
Investors are concerned about the mountain of debt and chronic shortage of foreign exchange in the Indian Ocean archipelago off the east coast of
Christopher Eads, an analyst with the Economist Intelligence Unit, said a “huge amount” of imports were funded by buying foreign exchange on the black market, adding that the black market exchange rate was about double the official rate to the dollar.
“It (the devaluation) shows the Central Bank has accepted that now and no longer denies that this is a problem,” he said.