ECONOMYNEXT – Sri Lanka’s central bank which has been barring banks from buying International Sovereign Bonds periodically has extended the ban indefinitely.
“The central bank of Sri Lanka with a view to easing pressure on the exchange rate and considering the substantial amount of possible/potential outflow of foreign exchange by banks and its impact on banks’ risk management requires the licensed commercial banks to National Savings Banks to suspend the purchase of Sri Lanka International Sovereign Bonds until further notice,” the regulator said in a direction.
Sri Lanka set up a Latin American style soft-pegged exchange regime with extensive sterilization powers in 1950 and had been suffering forex shortages and general monetary instability ever since.
As a consequences the country has been hit by forex shortages and trade restrictions.
Analysts and economists have called for rules to restrain the central bank’s domestic operations to force it to follow its mandate of providing ‘economic and price stability’ for people to carry out their lives.
Sri Lanka has seen severe monetary instability in 2020, which triggered downgrades and made ISBs an attractive option for banks. (Colombo/May16/2021)