Central Bank acknowledges deviation in formal and informal exchange rates
Prof. W.D. Lakshman
Sri Lanka maintains the exchange rate around Rs. 200 to the US$ without any changes, Central Bank (CB) Governor Prof. W.D. Lakshman said on Thursday acknowledging however that there were deviations between the formal and informal rates.
He noted that this rate hike may exert some impact on the monetary policy although the CB has not issued any directive towards this end.
The operational arrangements on the determination of the exchange rate are still intact and the Monetary Authority is exploring the possibility of bridging the gap between the formal and informal rates.
Prof. Lakshman was addressing the CB’s monthly monetary policy review media conference conducted via online zoom platform.
Answering a question raised by a journalist on the different exchange rates in the banking sector and maintaining of the same exchange for some time without any fluctuations, he said there was a ‘gentlemen’s agreement to keep the rate around Rs. 200 to the US$ between the banks and the Monetary Authority.
Although the CB would publish an exchange rate of Rs. 197.89/202.89 for 1US$ on its website, the inter-bank rate is varied from Rs. 219/220 or Rs. 203/211 and in the unofficial market dollar is being sold for around Rs. 235-240 and sometimes for even more, official data showed.
A maximum limit on dollar deposit accounts of exporters will be imposed to bring down the gap between rupee and dollar deposit rate and rupee loans, Prof. Lakshman said.
“The aim is to impose these caps on export earnings that are held in foreign currency accounts in the wake of many exporters holding onto their foreign exchange earnings in bank deposits without changing it to rupees,” he added.
With the increase in import expenditure outweighing the improvements observed in earnings from exports, the trade deficit continued to widen during the first half of 2021 over the corresponding period of last year.
Sri Lanka’s foreign reserves are expected to be boosted to the level of around $4 billion from $2.8 billion with the realisation of the International Monetary Fund’s (IMF)’s $780 million in terms of Special Drawing Rights (SDR) and several other forex inflows, Prof. Lakshman said.
He revealed that CB officials are conducting discussions on IMF procedures including Article IV consultations which are expected to be concluded by the end of this year.
However as an immediate foreign financing, the country will receive the first tranche of a Bangladesh swap facility of $50 million within the next few days and the balance two tranches of $200 million later this month, Deputy Governor K.M. Mahinda Siriwardana disclosed.
The China Development Bank and Sri Lankan Government have also entered into an agreement of RMB 2 billion (approx. $308 million or Rs 61.5 billion) Term Facility on Thursday.
The facility is to be used to support Sri Lanka’s COVID-19 response, economic revival, financial stability and livelihood betterment. It can also be used to strengthen foreign reserves.