ECONOMYNEXT – Sri Lanka’s banks continued to face difficulties in getting foreign exchange from exports and remittances after a ‘revaluation’ of the rupee to 203 from 230 levels, and were tightening dollar rationing further, market participants said, while there were isolated trades in bonds.
Banks were forced to ration dollars as supplies continued to be weak, market participants said.
Banks started quoting rates of 198/203 level to the telegraphic transfers this week after they were requested to ‘revalue’ the rupee to 203 levels, though deals were being matched within banks around 231 to the US dollar at the time.
With remittances also falling after the revaluation banks are finding it difficult to give dollars to importers.
Some banks were also finding it difficult to provide dollars for credit and debit cards, though they were dipping into open positions which were already negative.
“Up to now personal payments were honored,” a financial official said. “But it if this continues some kind of limit may be needed.”
There have been complaints earlier that some dollar transactions did not go through credit cards.
The central bank said there were no restrictions on personal transactions.
But banks which did not earlier bother to closely monitor transactions are now blocking deals suspected to be of a commercial nature.
Sri Lanka is facing dollar shortages due to money printed by the central bank which is making outflows greater than inflows forcing a de facto non-credible peg to break.
The peg broke towards 230 to the US dollars as liquidity was injected mainly through failed bill and bond auctions.
On September 01, the statutory reserve ratio was raised 4.0 percent from 2.0, taking large volumes of liquidity out of the interbank market, but it was fully sterilized with overnight money.
Bill and bond auctions are failing because there are price ceiling strung across the yield curve in the form of de facto policy rates, injecting money. In order to stop the rationing of dollar, rationing of sugar, rationing of milk, the rupees have to be ‘rationed’ by halting their over-issue and getting bond markets to work, analysts say.
Some of the rates have since been raised. There have been sporadic trading this week, dealers. Bonds markets have become illiquid over several weeks (Colombo/Aug09/2021)