- Makes second change in a month
- Expands 2-week deadline to 30 days on request from exporters
- Move follows earlier step to reduce 25% mandatory conversion to 10%
- Pressure on rupee eases as currency markets embrace $ 500 m infusion from CDB
The Central Bank on Friday adjusted regulations for the repatriation of export earnings for the second time this month, expanding the time given to exporters from two weeks to 30 days to convert 10% of their earnings into local currency.
The monetary authority issuing a new gazette announced the change on Friday. The Central Bank earlier this month changed the mandatory requirement of converting 25% of exporter earnings to local currency within two weeks to 10% as the rupee came under pressure.
The Monetary Board said, having considered the requests made by exporters of goods, it had amended the Rule No. 2 of 2021 as published in the Gazette Extraordinary No. 2218/38 dated 9 March 2021.
“To reduce the percentage of mandatory conversion requirement of export proceeds of goods into Sri Lankan Rupees from twenty-five (25) per centum to ten (10) per centum, and to extend the number of days given to exporters to convert the export proceeds of goods into Sri Lankan Rupees, from fourteen (14) days to thirty (30) days, provided, however, that such date of conversion shall not be a date later than One Hundred and Eighty (180) days from the date of shipment,” the Gazette added.
In the first week of April, the Central Bank announced it has kept policy rates steady to support economic recovery from COVID-19. The Central Bank said it was seeking support from multiple sources to manage Sri Lanka’s upcoming debt repayments and reiterated commitment to meeting its obligations even as reserves slipped to $ 4.1 billion at the end of March.
The rupee has also been subject to persistent depreciation, caused partly by dollar demand for imports ahead of the festive season, according to analysts. However, the tide turned after China Development Bank finalised a $ 500 million loan earlier this week, pushing yields on Sri Lankan bonds and sending the rupee to Rs. 201.28 against the dollar yesterday. The buying rate was recorded at Rs. 195.72 by the Central Bank.
The appreciation also comes after State Minister of Money, Capital Markets and Enterprise Reforms Ajith Nivard Cabraal led a delegation to Oman and Qatar. Government officials are also engaged in talks with Bangladesh.
Sri Lanka has two large debt repayments in May and July, with the former expected to be about $ 720 million and the latter $ 1 billion.
Recently, the Central Bank entered into a bilateral currency swap arrangement with the People’s Bank of China (PBOC) amounting to CNY 10 billion (equivalent to approximately $ 1.5 billion). But since it’s a local currency swap it is unlikely to reduce pressure on the rupee, according to experts.
“Although the rupee experienced some volatility recently, the continuation of the existing restrictions on non-essential imports and certain foreign exchange outflows, among others, is expected to help cushion pressures in the domestic foreign exchange market,” the Central Bank said in its latest monetary policy review.
The Governor emphasised Central Bank involvement in the currency market had been minimal with its role largely limited to instructing banks.
Gross official reserves were estimated at $ 4.1 billion (excluding the swap facility with the PBOC), with an import cover of three months, at the end of March.