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Sri Lanka Central Bank helping clear containers stuck at port without forex: Governor | EconomyNext - EconomyNext

Friday August 20, 2021 7:25 am

Friday August 20, 2021 7:25 am

ECONOMYNEXT – Sri Lanka’s central bank has intervened individually to facilitate the clearing of containers stuck at port, as importers struggled to find dollar Governor W D Lakshman said.

“On many occasions, when one bank was unable to give dollars, it was possible to get some from another,” Governor Lakshman told reporters Thursday.

“We know that some amount of goods – some amount containers – are piled up at the port. In that regard we had always intervened and discussed with banks and we were engaged in a process of helping facilitate those payments.

“I think through that we able to clear many containers that were stuck. This is not the best method but at the moment that is the one that creates the least damage.”

Sri Lanka is facing forex shortages due printing money to keep interest rates down, while operating a pegged exchange rate.

On Thursday the central bank raised it policy rate through which overnight money is printed to 6.00 percent from 5.50 percent.

Most of the recent liquidity (central bank credit) had been injected after Treasury bills auctions failed due to rate ceilings imposed by the central bank at rates lower than the overnight rates.

However Governor Lakshman has said that the yield ceilings will stay for some time, which is likely to nullify any perceived benefits from the rate hike and and reserve ratio hike of 2.0 percent, analysts warn.

In the recent past the central bank has created currency crises by the expedient of rejecting all bids for particular maturities and printing money to repay them, analysts have shown.

A central bank is a note issueing bank, of which foreign reserves are its ‘deposits’.

When it gives ‘loans’ as central bank credit by printing money, and the money comes up of for redemption in forex markets through imports, it runs out of reserves (or deposits) at a given rate of exchange (peg).

Sri Lanka’s central bank is no longer providing dollars for current transactions at the official rate, but is trying to impose a peg by barring interbank trading above 200 rupees, which has led to forex shortages in banks.

Banks are now paying as much as 219 to 220 rupees per dollar, while parallel markets have developed.

Parallel markets also developed when the central bank was printing large volumes of money in the late 1960 and 1970s.

Related

Sri Lanka ‘official’ exchange rate unchanged CB Governor says, amid parallel rates

In 1969 authorities brought the Import and Export Control law as foreign reserves fell to 40 million US dollars from 190 million in 1950 when a currency board which cannot create balance of payments troubles was replaced with Latin America style counter-cyclical Latin America style central bank

An official parallel exchange rate was also implemented with Latin America style ‘foreign exchange entitlement certificates’. (Colombo/Aug20/2021)