Pressure on exchange rate easing, kerb premiums falling says Governor

ECONOMYNEXT –Pressure on the exchange rate is easing with higher interest rates and a slowdown in credit with kerb premiums also falling, Central Bank Governor Nandalal Weerasinghe said on Thursday.

“We are seeing the pressure on the rupee easing as a result of exports growing and imports contracting and we hope that trend will continue,” Weerasinghe said at a policy review meeting.

“On the foreign remittances side, the severe shortage of forex has settled to a certain extent,” he said.

For the first five months of 2022 Sri Lanka has earned 1.33 billion dollars in remittances. Import expenditure for the period stood at 8.7 billion dollars. Forex inflows, mainly remittances, have helped pay for the import expenditure of key commodities, Weerasinghe said.

“We are especially able to allocate forex for the purchase of fuel, gas, and medicine. The import cost has reduced and export income is at a sizable level,” he said. “We are able to facilitate the purchase of basic needs of the country even without going for short term loans. That is a positive sign when compared with previous policy decision making. There is very little intervention by [the central bank].”

According to central bank data, Sri Lanka’s trade deficit has narrowed to 3.5 billion dollars in the first half of 2022 compared to 4.3 billion dollars a year earlier as import expenditure slowed.Exports earnings for the month of July was 1.15 billion dollars while the import expenditure was 1.25 billion dollars.

Central bank officials said the gap between the black-market premium and the banks have reduced for forex. The bank is quoting the US dollar at around 360 under a guidance peg whereas commercial banks were selling at around 370.However, the central bank will continue to monitor dollar earning exporters to ensure the repatriation of dollars into the country to further improve the situation, they said.