Stringent import restrictions imposed by the Government to avoid a possible foreign exchange crisis have strengthened the rupee, which was depreciating at a significant rate following the outbreak of Covid-19 in Sri Lanka.
The Sri Lankan rupee appreciated by 7.3% as of last Monday (15), to Rs. 185.9 from its peak of Rs. 199.7 against the US dollar on 9 April 2020, according to data.
Analysts say the appreciation against the US dollar was mainly driven by the ban on imports, excluding fuel, medicines, and a few other essentials, in April.
Given the positive development and a healthy level of Gross Official Foreign Reserves, which stood at $ 6.5 billion as at 1 June 2020 with minimal forex market interventions to safeguard the rupee, analysts forecast the rupee to be Rs. 195 against the US dollar by the end of this year, revising their previous forecast of Rs. 210.7.
Following double-digit depreciation a year ago, the Sri Lankan rupee appreciated against the US dollar by 0.6% in 2019 and started this year at Rs. 181.50, which witnessed a slight appreciation during the first couple of days.
However, during the month, it depreciated by 0.04%. On 1 February, the Sri Lankan rupee was at Rs. 181.40 and fluctuated throughout the month, yet remained below Rs. 182. During the period from 1-29 February, it depreciated by 0.22%.
The monthly depreciation rate of the Sri Lankan rupee escalated alarmingly in March, with it dropping to Rs. 189.25 on 27 March from Rs. 181.92 on 1 March, against the US dollar. Sri Lanka reported its first Covid-19 national case in March, and islandwide curfew was subsequently announced on 20 March.
Even before the curfew, on 19 March, the Central Bank of Sri Lanka (CBSL) issued a directive to local banks, to suspend facilitating importation of motor vehicles, vehicle parts, toiletries, baby carriages, and several other items the Government considered as nonessential, under Letters of Credit (LCs).
The CBSL also suspended the purchase of Sri Lanka International Sovereign Bonds (ISBs) by licensed banks in Sri Lanka. Authorised dealers of foreign exchange were allowed to issue foreign currency notes as travel allowances only up to a maximum of $ 5,000 or its equivalent, in other foreign currencies.
Import restrictions were further expanded to include all imports but fuel, pharmaceuticals, and raw materials for exports on 16 April, for another three months. Issuing a gazette, the Ministry of Finance imposed restrictions on rice, flour, sugar, and apparel products, but permitted imports of 111 categories which included palm oil, milk, and electrical appliances.
"This import limitation was imposed owing to the muted ISB market given the anticipated negative impact from Covid-19 on the global economy, with the Government of Sri Lanka having to honour an estimated $ 4 billion during April to December 2020," analysts stated.
Accordingly, around 70% of the funding needed for pending debt settlements were secured from neighbouring India and the Republic of China.
Analysts noted that with the International Monetary Fund (IMF) agreement on the former Extended Fund Facility expiring during early June 2020, the request made by the Government from the IMF for a Rapid Credit Facility amounting to $ 800 million is still under negotiation.
"Thus, from a worst-case scenario, the Government may have to let its Gross Official Foreign Reserves be adjusted when it comes to the settlement of the ISB that is expected to mature on 4 October 2020," analysts noted.
In addition to the import restrictions, the CBSL on 2 April requested all Sri Lankans and well-wishers living in Sri Lanka and abroad to consider depositing their foreign currency savings and other funds within the Sri Lankan banking system – licensed commercial banks and specialised financial institutions – during the three-month period commencing 2 April 2020, into Special Deposit Accounts. According to banks, there was significant demand for this account.Import controls strengthen rupee
20 Jun 2020
Import controls strengthen rupee
20 Jun 2020
Stringent import restrictions imposed by the Government to avoid a possible foreign exchange crisis have strengthened the rupee, which was depreciating at a significant rate following the outbreak of Covid-19 in Sri Lanka.
The Sri Lankan rupee appreciated by 7.3% as of last Monday (15), to Rs. 185.9 from its peak of Rs. 199.7 against the US dollar on 9 April 2020, according to data.
Analysts say the appreciation against the US dollar was mainly driven by the ban on imports, excluding fuel, medicines, and a few other essentials, in April.
Given the positive development and a healthy level of Gross Official Foreign Reserves, which stood at $ 6.5 billion as at 1 June 2020 with minimal forex market interventions to safeguard the rupee, analysts forecast the rupee to be Rs. 195 against the US dollar by the end of this year, revising their previous forecast of Rs. 210.7.
Following double-digit depreciation a year ago, the Sri Lankan rupee appreciated against the US dollar by 0.6% in 2019 and started this year at Rs. 181.50, which witnessed a slight appreciation during the first couple of days.
However, during the month, it depreciated by 0.04%. On 1 February, the Sri Lankan rupee was at Rs. 181.40 and fluctuated throughout the month, yet remained below Rs. 182. During the period from 1-29 February, it depreciated by 0.22%.
The monthly depreciation rate of the Sri Lankan rupee escalated alarmingly in March, with it dropping to Rs. 189.25 on 27 March from Rs. 181.92 on 1 March, against the US dollar. Sri Lanka reported its first Covid-19 national case in March, and islandwide curfew was subsequently announced on 20 March.
Even before the curfew, on 19 March, the Central Bank of Sri Lanka (CBSL) issued a directive to local banks, to suspend facilitating importation of motor vehicles, vehicle parts, toiletries, baby carriages, and several other items the Government considered as nonessential, under Letters of Credit (LCs).
The CBSL also suspended the purchase of Sri Lanka International Sovereign Bonds (ISBs) by licensed banks in Sri Lanka. Authorised dealers of foreign exchange were allowed to issue foreign currency notes as travel allowances only up to a maximum of $ 5,000 or its equivalent, in other foreign currencies.
Import restrictions were further expanded to include all imports but fuel, pharmaceuticals, and raw materials for exports on 16 April, for another three months. Issuing a gazette, the Ministry of Finance imposed restrictions on rice, flour, sugar, and apparel products, but permitted imports of 111 categories which included palm oil, milk, and electrical appliances.
"This import limitation was imposed owing to the muted ISB market given the anticipated negative impact from Covid-19 on the global economy, with the Government of Sri Lanka having to honour an estimated $ 4 billion during April to December 2020," analysts stated.
Accordingly, around 70% of the funding needed for pending debt settlements were secured from neighbouring India and the Republic of China.
Analysts noted that with the International Monetary Fund (IMF) agreement on the former Extended Fund Facility expiring during early June 2020, the request made by the Government from the IMF for a Rapid Credit Facility amounting to $ 800 million is still under negotiation.
"Thus, from a worst-case scenario, the Government may have to let its Gross Official Foreign Reserves be adjusted when it comes to the settlement of the ISB that is expected to mature on 4 October 2020," analysts noted.
In addition to the import restrictions, the CBSL on 2 April requested all Sri Lankans and well-wishers living in Sri Lanka and abroad to consider depositing their foreign currency savings and other funds within the Sri Lankan banking system – licensed commercial banks and specialised financial institutions – during the three-month period commencing 2 April 2020, into Special Deposit Accounts. According to banks, there was significant demand for this account.Kapruka
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Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!