Central Bank sells $ 372 million in November to defend rupee
- A record in recent years, which reflects the liquidity crisis in SL currencies currently in
- The rupee came under heavy pressure from June of this year, when expected inflows started to dry up.
- CB has a fixed exchange rate of Rs. 198/202 against the dollar without providing convertibility
- This has led to create a large gap between the official exchange rate and market rates.
The Central Bank sold $ 372.35 million in November to defend the rupee – a record high in recent years – reflecting the severity of the currency liquidity crisis currently facing Sri Lanka.
According to the latest data, the Central Bank sold US $ 372.35 million in foreign exchange and bought US $ 61.71 million on the domestic foreign exchange market in November, remaining a net seller of foreign exchange for the second consecutive month.
In October, after months of absorbing or net buying foreign currency in the market, the Central Bank became a net seller of US $ 72.32 million of foreign currency. The Sri Lankan rupee has come under great pressure since June this year, when expected inflows started to dry up as the excess money came from monetary stimulus which led to increased imports.
This created a shortage of dollar liquidity in the domestic foreign exchange market, resulting in parallel exchange rates, exacerbating the problems of the country’s external sector.
The Central Bank fixed the exchange rate at Rs. 198/202 against the dollar, but failed to provide convertibility, creating a large gap between official rates and market rates, causing huge amounts to be transmitted. foreign currency from Lankan migrant workers through informal activities. channels, which convert dollars at rates much higher than those offered by banks.
This prompted the Central Bank to launch a crackdown on formal and informal money changers who offered higher rates, threatening authorized money changers with revocation of their licenses.
The tightening of foreign exchange liquidity undermined the central bank’s earlier intentions to collect a substantial amount of foreign exchange in its quest to replenish foreign exchange reserves from non-indebted inflows. The most recent challenges in staying the course with its earlier plans came when the Central Bank had to intervene directly in the foreign exchange market to help some importers of basic necessities such as crude oil, powdered milk, gas. kitchen, cement, etc. shortages in the local market.
The central bank said on November 25 that it had so far raised $ 150 million each through mandatory remittances conversions from migrant workers and exporters. The bank also said it was seeing a noticeable increase in exporter conversions with the new rules that came into effect in late October, which gave exporters ample leeway before converting their remaining earnings.
Nonetheless, the inclusion of services exports, which encompass professional services, has raised concerns of late as Sri Lankan residents earning their income in US dollars or some other foreign currency have seen their income converted into rupees by their families. banks without obtaining prior consent, leading to widespread unrest. and dissatisfaction among this category.