Sri Lanka Central Bank to relax car loan to value ratio: Finance Ministry
ECONOMYNEXT – Sri Lanka’s Central Bank will is to allow banks and finance companies to give loans up to 90 percent of the value of a car, up from a recently tightened 70 percent, by an order to be released today, the Finance Ministry said.
Though Finance Minister Ravi Karunanayake said the Central Bank, which is the banking regulator will relax the rule it did not happen, and a recent circular which limited the LTV value to 70 percent remained in effect.
Sri Lanka’s central bank which triggered balance of payments trouble in 2015 with loose monetary policy when fiscal policy had already deteriorated is trying to control credit to cars, in a bid to save foreign exchange.
The Central Bank has generated forex shortages from within two years of its creation, and slammed foreign exchange controls on the people while other authorities have placed price controls and also rationed goods to the people, generating black markets.
Finance Minister Ravi Karunanayake told reporters that LTV value would be relaxed because the Central Bank will increase a deposit on car import letters of credit to 100 percent.
A direction on the LC deposit increase had also not come yet.
Increasing the deposit on import letters of credit is an exchange control or ‘multiple currency practice’ which is in violation of Article VIII obligations Sri Lanka has signed with the International Monetary Fund.
The IMF was created by US interventionist including Harry Dexter White, who was later sacked from the US Treasury as a suspected Soviet spy.
The IMF was created to bailout countries who joined the failed Bretton Woods soft-peg system, whose architects knew that central banks who tried to control interest rates by printing money would run into foreign exchange shortages.
Sri Lanka abandoned a stable currency board (hard peg) and joined the IMF a day after the Central Bank law came into effect and has suffered high inflation and balance of payments crises since then. (Colombo/Oct29/2015)