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Monday October 25th, 2021
Banking

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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