Duruthu Edirimuni Chandrasekera – sundaytimes.lk
Economic realities are decided on the street and not in the confines of policymakers’ rooms. This was amply displayed when local banks with fast depleting dollar reserves decided to ‘ignore’ the agreement with the Central Bank (CB) and publish freshly increased US dollar exchange rates on their websites.
“This shows the reality of the economy is not within the Central Bank’s walls,” an economist told the Business Times. A banker confirmed this noting that for far too long they had prolonged or denied importers Letters of Credit (LCs) and they cannot hold on anymore. This is despite the regulator saying that licensed banks have not been asked to devalue Sri Lanka Rupee. “To hold the policy rates was a gentlemen’s agreement between us and the Central Bank but with the current situation all that went out of the window,” the banker said.
Private banks were pushed to the wall especially when the regulator indicated that they were to manage their foreign currency funding without drawing down on CB reserves. “These rates are determined by supply and demand. If importers are willing to buy dollars at a higher rate and exporters willing to sell at higher rates, there is nothing much we can do about it,” a senior banker said. The economist agreed noting that in a manipulated exchange rate regime, an unwritten agreement cannot be honoured.
Amid this drama, the CB has imposed a ceiling on rupee conversions of exporter Business Foreign Currency Accounts’ balances. The regulator has said exporters can’t cross beyond certain rates when converting dollars to rupees on these accounts. “The rates vary between Rs. 213 – Rs. 220 which we are currently struggling with as there is no clarity,” an exporter said. Exporters are willing to encash their dollars at 10 to 15 per cent more which is around Rs. 220 for a dollar. So, they are awaiting a better exchange rate to convert and holding onto their dollars.
Plagued with bad choices, recently a decision to sell the gold reserves at the CB was narrowly avoided when a Monetary Board member vehemently disagreed with scraping the bottom of the bowl, the Business Times learns. The regulator has six tonnes of gold reserves as of now which is equal to US$ 900 million.
The CB has also resorted to stopping certain payments through credit cards. “All this shows the country is really on a desperate footing. But resorting to illogical and irrational decisions must be avoided at any cost,” a second economist said comparing the situation to setting a ‘trap door in a birdcage wanting the birds to fly out, but in fact not letting them do so’. He added that such stricter restrictions will strengthen the underground market.
Analysts point out the only sector getting the raw end of the deal from the bad decisions of the top brass are the migrant workers and the foreign exchange-earners who are the very same people helping to keep the debt-ridden country afloat. “The banks encash their dollars at Rs. 200 levels and sell them at Rs. 211- Rs. 220 range. The foreign exchange-earners send over $ 600 million a month. The Bank of Ceylon alone gets $ 200 million monthly from migrant workers. They are minting cash. This tantamount to stealing from the poor and feeding the rich.”