ECONOMYNEXT – Sri Lanka will give an incentive package to anyone who repatriates dollars held abroad to the island in the next three months, Deputy Central Bank Governor Nandalal Weerasinghe said as the rupee came under pressure in forex markets.
“If anyone has dollar deposits abroad, it may be an exporter or someone who had worked abroad, if he brings in the dollar we will give concessions in this period,” Weerasinghe told during a television show.
“That will help the domestic banking sector.”
Sri Lanka’s central bank had earlier published an appeal for dollars to be brought to the country with no questions asked as the rupee fell amid a Coronavirus crisis.
Dollar interest rates in Sri Lanka’s banking system has been elevated amid higher counterparty risk perception analysts said as the rupee came under pressure from liquidity injections.
As a result the gap between dollar and rupee interest rates has narrowed and swap premiums have thinned out in forward markets.
Sri Lanka has a non-credible peg with the US dollar which becomes easily de-stablized due to excess liquidity and narrow targeting of a call money rate, analysts have said.
Since the latest spate of liquidity injections the rupee has fallen from 182 to the US dollar to 200 as the country is fighting off a Coronavirus crisis.
Sri Lanka is also seeking swap lines from India and China to bolster reserves.
The rupee has fallen from 4.70 to 200 to the US dollar since the soft-peg was created, which is the worst performance among South Asian monetary authorities which all started at the same level at independence from British rule. (Colombo/Apr09/2020)