CBSL imposes 100% LC margins on vehicle imports to ease currency pressure

The Central Bank of Sri Lanka (CBSL) has directed licenced commercial banks (LCBs) to impose a 100% margin deposit requirement against letters of credit (LCs) for the importation of motor vehicles with immediate effect.

In a statement the CBSL said the decision to impose the margin deposit requirement is based on recent developments which, if not addressed, could threaten macroeconomic stability. These include the following:

• Recent global financial market volatility and generalised pressure on currencies of emerging market economies
• Continued excessive motor vehicle imports, partly driven by unwarranted speculation on future exchange rate movements, interest rates movements and budgetary measures

The CBSL said the imposition of the margin deposit requirement, together with the measures already taken by the Government with regard to taxes applicable on motor vehicle imports, is expected to curb non-essential imports of motor vehicles, and ease undue pressure on the current account of the balance of payments (BOP) and the exchange rate.

The rupee hit an all-time low of 167.20 per dollar yesterday before closing at 167.10/30 due to dollar demand from importers and banks.