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Friday December 9th, 2022

Sri Lanka central bank controls dollar deposit rates amid currency crisis

ECONOMYNEXT – Sri Lanka has linked the rates paid to foreign currency deposit to rupee yields using powers of a Monetary Law devised by a US money doctor, as a currency crisis triggered by record liquidity injections gripped the country.

The maximum interest rates that shall be offered or paid by a licensed commercial bank and the National Savings Bank on foreign currency (FCY) deposits below one year would be 150 basis points below the one year Treasury bill auction yield or 5 percent, whichever is higher.

Deposits of more than a year will be “based on the market behaviour” the central bank said.

Special Deposit Accounts can be paid a higher interest rate.

“The auctions for calculating the above average rate, shall be selected based on the auction date falling within the corresponding calendar month, and not the settlement date,” the central bank said.

“The maximum interest rates for the forthcoming quarter shall be computed on the last working day of the current quarter.”

In August the central bank imposed a ceiling rate of 5.0 percent on dollar deposits, discouraging the active raising of deposits by banks.

Sri Lanka’s dollar yields have risen sharply as liquidity tightened after downgrades and counterparty risks rose.

Sri Lanka is currently facing a currency crisis due to low interest rates enforced with liquidity injections.

During the ousted ‘Yahapalana’ administration when the currency collapsed from 131 to 181 in two crises, deposit rate controls were slapped on rupee deposits of hapless poor savers after printing money to bust the currency peg and drive inflation up.

The rupee is now on a 200 to the US dollar peg which has lost credibility and parallel exchange rates are around 250 to the dollar.

In 1950 a classical analyst writing in the London-based The Banker magaize warned of things to come when a discretionary central bank with money printing power was set up with other sweeping powers.

“It will be obvious from this summary that the new Monetary Board is going to be given almost unlimited power of control over the banking system of Ceylon-a power which, if misused, could do irreparable harm to the island’s economy,” the analyst wrote.

“The experience of the next few years will be watched with inter~st to see whether the Ceylon experiment will indeed show the rest of the Empire the way that a developing economy should take to free itself from the as yet ungauged disadvantages of the Currency Board system or whether it will merely provide another example of the tangled skein so often woven by those who set out with the good intention of making finance ” the servant instead of the master of the people “. (Colombo/Jan02/2021)

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Sri Lanka bond yields end higher, kerb dollar Rs370/371

ECONOMYNEXT – Sri Lanka bonds yields ended up and the T-bills eased on active trade on Friday, dealers said.

The US dollar was 370/371 rupees in the kerb.

“The bond rates went up, however more interest was seen in the short term bills by the investors” dealers said.

A bond maturing on 01.05.2024 closed at 31.90/32.20 percent on Friday, up from 31.25/70 percent at Thursday’s close.

A bond maturing on 15.05.2026 closed at 30.30/31.30 percent steady from 30.30/31.00 percent.

The three-month T-bills closed at 30.75/31.30 percent, down from 32.00/32.25 percent.

The Central Bank’s guidance peg for interbank transactions was at 363.18 rupees against the US dollar unchanged.

Commercial banks offered dollars for telegraphic transfers between 371.78 and 372.00 for small transactions, data showed.

Buying rates are between 361.78 – 362.00 rupees. (Colombo/Dec 09/2022)

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Foreign minister, US ambassador discuss future assistance to crisis-hit Sri Lanka

ECONOMYNEXT — In a meeting in Colombo, Sri Lanka Foreign Minister Ali Sabry and US Ambassador to Sri Lanka Julie Chung discussed ways in which the United States can continue to support Sri Lanka going forward, the Ambassador said.

Chung tweeted Friday December 09 afternoon that the two officials had reflected on the “twists and turns” of 2022, at the meeting.

Minister Sabry was recently in Washington D.C. where he US Secretary of State Antony Blinken.

A foreign ministry statement said the two officials held productive discussions at the Department of State on December 02 on further elevating bilateral relations in diverse spheres, including the 75th anniversary of diplomatic relations which will be marked in 2023.

Incidentally, Sri Lanka also celebrates the 75th anniversary of its independence from the British in 2023, and President Ranil Wickremesinghe has given himself and all parties that represent parliament a deadline to find a permanent solution to Sri Lanka’s decades-long ethnic issue.

The US has been vocal about Sri Lanka addressing concerns about its human rights record since the end of the civil war in 2009 and was a sponsor of the latest resolution on Sri Lanka passed by the United Nations Human Rights Council. Unlike previous resolutions, this year’s iteration makes specific reference to the country’s prevailing currency crisis and calls for investigations on corruption allegations.

In the lead up to the UNHRC sessions in Geneva, Minister Sabry Sri Lanka’s government under then new president Wickremesinghe does not want any confrontation with any international partner but will oppose any anti-constitutional move forced upon the country.

On the eve of the sessions on October 06, Sabry said countries such as the United States and the United Kingdom, who led the UNHRC core group on Sri Lanka, are greatly influenced by domestic-level lobbying by pressure groups from the Sri Lankan Tamil diaspora.

These pronouncements notwithstanding, the Wickremesnghe government has been making inroads to the West as well as India and Japan, eager to obtain their assistance in seeing Sri Lanka through the ongoing crisis.

The island nation has entered into a preliminary agreement with the International Monetary Fund (IMF) for an extended fund facility of 2.9 billion dollars to be disbursed over a period of four years, subject to a successful debt restructure programme and structural reforms.

Much depends on whether or not China agrees to restructure Sri Lanka’s 7.4 billion dollar outstanding debt to the emerging superpower. Beijing’s apparent hesitance to go for a swift restructure prompted Tamil National Alliance MP Shanakiyan Rasamanickam to warn of possible “go home, China” protests in Colombo, similar to the wave of protests that forced the exit of former pro-China President Gotabaya Rajapaksa.

The TNA will be a key player in upcoming talks with the Wickremesinghe government on a solution to Sri Lanka’s ethnic issue. (Colombo/Dec09/2022)

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India smogs out Sri Lanka’s China tower observers

 

ECONOMYNEXT – Sri Lanka’s Chinese-built Lotus Tower has halved visitors to its observation deck an official said as dirty air flowing from India triggered air quality warnings and schools in the capital closed.

“Masks are mandatory at the observation deck and roughly around 50 to 60 can go up to the observation deck at a time, time limits have not been altered and still persists at 20 minutes for observation,” the official told EconomyNext.

Prior to the smog, 120 observers were permitted at once to the deck.

However, even after limitations the Lotus Tower has continued to draw visitors, and revenues are coming in, the official said.

The tower built with a Chinese loan by the cash rich Telecom Regulatory Commission has been described by critics as a white elephant that eats the money earned from telecom operators mainly as spectrum fees.

Sri Lanka’s National Building Research Organization (NBRO) said India air heavily polluted with particulate matter was flowing across the island into a depression in the South West Bengal Bay. (Colombo/Dec09/2022)

 

 

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