Sri Lanka CB expects drop in remittances to reverse trend from October

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ECONOMYNEXT – Sri Lanka’s central bank expects the downward trend in foreign remittances to reverse from this month, as it believes that the release of US dollars for importers has stabilized the rate of changes and reduces the price difference between the dollar selling rate in banks and the parallel market.

Foreign remittances sent to Sri Lanka through official channels halved from the previous year to $ 353.2 million in September.

Sri Lanka developed multiple parallel exchange rates as the credibility of the anchor operated by the monopoly note-issuing bank deteriorated as it printed money (created more rupees) but refused to swap them all for dollars (provide convertibility when they turn to forex markets.

The lack of convertibility leads to a decline in the currency of a bank issuing banknotes.

Although the central bank ordered commercial banks to sell and buy dollars at around 200/203 rupees, importers and exporters exchanged dollars between 225 and 230 and NRFC deposits were converted around 2015, the market parallel has exceeded 230.

Meanwhile, Undiyal’s transfers were around $ 240 at one point. However, some level of convertibility has been provided recently.

If convertibility is ensured by reserves and no new money is injected through central bank counters to fill the liquidity shortage caused by the sale of the dollar and rates rise, the currency’s peg will fall. stabilizes.

However, money is still being injected at a key rate of 6.0%, although Governor Nivard Cabraal has lifted price controls on bond auctions, which has reduced the liquidity injections.

“The black market is happening all over the world and we have seen a huge difference at one point,” Central Bank Governor Ajith Nivard Cabraal told reporters.

“We weren’t happy with it. That is why we have provided enough dollars to ensure that the banks do not transact at any rate other than the band rate. It is happening now. I can assure you, in the banks, that this is happening.

“Even the exchange rate at which the gray market operates has dropped significantly. We also keep these numbers and find that they have dropped quite significantly, ”he said without giving details on the sales rate.

The parallel market dollar rose to around 247 during the lockdown and fell to about a few weeks ago and has since climbed to around 230/231 according to market participants. The euro is around 265.50 / 266 rupees.

Expatriate workers can get higher rates through informal channels, diverting money from banks that pay low rates.

“We approached it with greater exchange rate stability. So I think this month we would see a change in that situation, ”he said.

He said that a new money transfer system has also been launched by banks and the central bank. However, to restore the credibility of peg bonds, auctions must succeed and any refinancing of the deficit by the central bank must be avoided.

However, with every partially successful bond auction, the central bank runs out of ammunition to provide convertibility analysts with negative net reserves. (Colombo / Oct 16, 2021)


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