Sri Lanka banks required to sell 10-pct of forex remittances to the central bank

ECONOMYNEXT – Sri Lanka’s commercial banks have been required to sell 10 per cent of foreign worker remittances that are converted each day to the central bank, finance officials said.

The rule came after the government gave a two rupee to a dollar extra for worker remittances in the latest budget, an official said.

Sri Lanka received 7.1 billion US dollars of official remittances in 2020, up from 6.7 billion US dollars in 2019.

It is not clear how much of remittances are deposited in forex accounts and not immediately converted.

Sri Lanka’s gross official reserves fell to 5,665.1 million in December 2020 from 7,638.5 in December 2019, according to central bank data.

The rule went into effect on January 27.

Any dollars purchased by the central bank takes supply away from forex markets and adds new rupee liquidity, lowering rates, increasing rupee reserves of banks (excess liquidity in money markets) putting further pressure on the peg unless mopped up, analysts say.

Sri Lanka’s rupee which strengthened immediately after the forward market was closed has come under renewed pressure over the last few days.

Interbank forwards required for swaps have since been permitted, market participants said, though forward cover for outsiders are not permitted. (Colombo/Feb03/2021)

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