ECONOMYNEXT – Sri Lanka’s official remittances in January 2022 were down 61.6 percent from a year earlier to 259.2 million US dollars, central bank data showed, as overseas workers sent money through unofficial channels at a higher parallel exchange rate.
Sri Lanka is trying to enforce a peg at 200 to the US dollar, but money printed to keep interest rates low and exchange controls which come in the wake of liquidity injections have pushed the price in the unofficial market to around 248 to the US dollar, and the Hawala/Undiyal rate even higher.
As a result workers in the Middle East for example can get a higher rate.
Official remittances which were edging down as the economy opened, driving up credit started to fall even faster after August as a non-credible peg was strictly enformed.
Authorities are offering 10 rupees above the official 200 to the US dollar rate, of which at least 8 rupees is coming from the central bank itself.
Any liquidity injected by the central bank expands reserve money, triggers more pressure on the peg undermining its credibility further as the recipients spend the money on imports.
Bangladesh Central Bank which cut rates in July as the economy re-opened as seen parallel exchange rate widen as Undi rates rose up to December.