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Wednesday February 1st, 2023

Sri Lanka slaps 100-pct LC margin to discourage consumer imports amid money printing

ECONOMYNEXT – Sri Lanka has imposed a 100 percent cash margin when opening letters of credit on over 600 items ranging from chocolates and wine to raincoats and carpets to discourage imports as the country faced foreign exchange shortages as large volumes of money were printed.

Banks have also been barred from giving credit for importers to meet the margins.

Licensed Commercial Banks “shall not grant any advances to their customers for the purpose of enabling such customers to meet the minimum cash margin deposit,” the direction said.

A direction issued to licensed commercial banks by the Central Bank said the margin requirement was effective from September 08.

Sri Lanka has place price controls on government bond auctions discouraging bids and the central bank has taken them to its balance sheet giving new money which then lead to a foreign reserve loss when

The direction described 693 items through customs codes including, chocolates, spaghetti, apple juice, wine, oats, soya milk, dairy goods, lipsticks, carpets, coats anoraks and electronic goods.

Download Order LC-Margin-Sep09

Sri Lanka has a habit of blocking what bureaucrats claim to be ‘non-essential’ or ‘luxury’ goods whenever money printing hits the island’s non-credible peg.

The curbs on chocolates and lipsticks came after 39 billion rupees was printed last Friday to control the 12-month Treasury bill yield.

Sri Lanka’s rupee has fallen from 4.70 to below 200 due to frequent liquidity injections.

Analysts have urged authorities to lift price controls rupee bond auction to channel savings of the public to the deficit, reduce consumption and imports and the erosion of foreign reserves and possible default on foreign debt.

(Colombo/Sept09/2021 – Correction letter issued on September 08)

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Sri Lanka bond yields down at close

ECONOMYNEXT – Sri Lanka’s bond yields were down at close following a bond auction on Wednesday, dealers said while a guidance peg for interbank transactions remained unchanged.

“The rates were steady at the auction,” a dealer said.

“This can be a signal to the market saying the rates will go down in the future.”

A bond maturing on 01.07.2025 closed at 32.40/60 percent, down from yesterday’s 32.60/85 percent.

A bond maturing on 01.05.2027 closed at 29.10/35 marginally down from yesterday’s 29.20/75 percent.

The Central Bank’s guidance peg for interbank US dollar transactions remained unchanged at 362.14 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 371.38 rupees on Friday, data showed. (Colombo/Feb 01/2022)

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Sri Lanka bill auction hits pothole after 2025 bond spike

ECONOMYNEXT – Sri Lanka sold only 45 billion rupees in Treasury bills at Wednesday’s auction after offering 120 billion rupees, data from the state debt office showed, amid market confusion over a spike in a two year bond at an earlier action.

30.1 billion rupees of 3-month bills were sold at 29.91 percent, unchanged from a week earlier after offering 60 billion rupees for auction.

5.1 billion rupees of 6-month bills were sold at 28.72 percent, flat after offering 30 billion.

10.3 billion rupees of 12-month bills were sold at 27.72 percent after offering 30 billion.

Phase II subscriptions have been opened.

The market was foxed after the 2025 bonds were accepted at sharply higher yield than market on January 30, dealer said.

There was further confusion as the there was an outright purchase of 2025 at around 29 percent earlier in January.

Some investors speculated that the authorities were trying to drive more buyers towards short end bonds as bill volumes were getting larger. (Colombo/Feb01/2023)

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Sri Lanka services exports down 5.9-pct in 2022

ECONOMYNEXT – Sri Lanka’s services exports were estimated to have fallen 5.9 percent to 1,876.3 million US dollars, the island’s Export Development Board said.

Services exports estimated is made up of ICT/BPM, construction, financial services, transport and logistics.

There are more than 500 ICT companies, the EDB said.

Sri Lanka’s merchandise exports were up 4.6 percent to US dollars 13.1 billion dollars in 2022 from 2021.

Sri Lanka’s goods exports are slowing amid lower growth in Western markets. (Colombo/ Feb 01/2023)

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