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Tuesday June 18th, 2024

Sri Lanka CB expects falling remittance to reverse trend from October

ECONOMYNEXT – Sri Lanka’s central bank expects the falling trend in foreign remittances to reverse from this month as it believes the release of US dollars for importers have stabilised the exchange rate and reduced the price difference between dollar selling rate at banks and the kerb market.

Foreign remittances sent to Sri Lanka through official channels have halved from a year earlier to 353.2 million dollars in September.

Sri Lanka developed a multiple parallel exchange rates as the credibility of the peg operated by the monopoly note-issue bank deteriorated as it printed money (created more rupees) but declined exchange all of them for dollars (provide convertibility when they turn in forex markets.

The failure to provide convertibility leads to a fall of the currency of a note-issue bank.

Though the central bank ordered commercial banks to sell and buy dollars at around 200/203 rupees, importers and exporters were exchanging dollars around 225 to 230 and NRFC deposits were converted at around 2015, the kerb market topped 230.

Meanwhile Undiyal transfers were around 240 dollars at one point. However some level of convertibility has been provided of late.

If convertibility is provided through reserves and no new money is injected through central bank windows to fill the liquidity shortage from the dollar sale and rates go up, the currency peg stabilizes.

However money is still being injected at a 6.0 percent policy rate though Governor Nivard Cabraal has lifted price controls on bond auctions which had reduced liquidity injections.

“Black market occurs all over the world and we did see a huge difference at one point,” Central Bank Governor Ajith Nivard Cabraal told reporters.

“We were not satisfied with that. That’s why we provided sufficient dollars to ensure that banks do not trade at any other rate other than what is at the band. That is happening now. I can assure, at the banks, it is happening.”

“Even the exchange rate at which the grey market is operating has shrunk quite appreciably. We also keep on those numbers and find that it has dropped quite significantly,” he said without elaborating on the selling rate.

The kerb market dollar rose as much as 247 during the lockdown and fell to around a few weeks ago and has since risen to around 230/231 market participants said. The Euro is around 265.50/266 rupees.

Expatriate workers can get higher rates from informal channels driving money off banks which pay low rates.

“We have addressed it with greater stability of the exchange rate. So I think this month we would see a change in that situation,” he said.

He said a new remittance system was also started by banks and the central bank. However to re-establish the credibility of the peg bond auctions have to succeed and any central bank re-financing of the deficit has to be avoided.

However with every partially successful bond auction, the central bank is running out of ammunition to provide convertibility analysts say with net reserves negative. (Colombo/Oct16/2021)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exempt on one house, but did mention a threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses was assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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