Sri Lanka slaps penal interest rates to force exporters to convert dollars

COLOMBO (EconomyNext) – Sri Lanka is slapping penalty interest rates on exports from June 01, 2015 to force exporters to covert dollars reviving measures usually imposed by the Central Bank during a balance of payments crisis.

Under a circular issued to banks, exporters with packing credit facilities who do not use export proceeds to settle the accommodations after 90 days will be charged a 5 percent penal interest and then 2 percent for every month for every month they delay.

Exporters can borrow rupees and keep their dollars without settling their export credit facilities expecting the rupee to depreciate.

Sri Lanka first imposed similar regulations with a 10 percent extra penalty rate, during a balance of payments crisis in 2001, but they were removed in October 2014.

The regulator has now told banks in a new direction that the circular is re-imposed but with a 5 percent penalty rate instead of 10 percent and it will be effective from June 01.

Sri Lanka gets into regular balance of payments trouble by trying to manipulate both interest rates and exchange rate simultaneously.

Analysts had warned that historic low interest rates which was pushing up consumption and rising state credit will put pressure on the balance of payments.

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