ECONOMYNEXT – Sri Lanka’s central bank will pay an extra premium of 10 rupees for US dollar converted into rupees by expatriated workers during the month of December, up from an existing 2 rupees.
The central bank said the extra 10 rupees will be paid from January 01 to December 31 inclusive of both days.
Banks generally convert US dollars of workers around 197.50 rupees.
Sri Lanka has a 200 rupees to the US dollar peg but its credibility has been undermined by liquidity injections to maintain a 6.0 percent policy rate. If the 10 rupees is paid by the central bank, more rupees will be created.
De facto foreign exchange rationing for imports by banks and tighter exchange controls imposed by the central bank have pushed up parallel exchange rates to 239 to the US dollar and Undiyal transfer rates to around 250.
Remittances coming through official channels have reduced sharply as a result.
Following mandatory conversion rules, there are fears that service inflows will also reduce.
Sri Lanka is in the middle of the third currency crisis in six years since call money targeting with excess liquidity began. (Colombo/Dec01/2021)