In a desperate move to preserve foreign currency, the Central Bank has restricted the holding of foreign cash by the public to US$10,000 from $15,000 with effect from August, Central Bank Governor Dr. Nandalal Weerasinghe divulged.
Addressing a media conference on Thursday convened to brief monetary policy decisions, he noted that law enforcement authorities have been directed to take stern legal action against persons holding foreign currency for illicit transactions or keeping it in their possession for over three months.
Foreign currency holders are to be given a grace period and after the expiry of the due date they will be required to deposit the money in a public or private bank.
Measures will be taken to seize foreign currency notes in excess of the stipulated limit under Sri Lanka’s foreign exchange law, he said adding that two such seizures had been made for charges of illicit transactions. Many people were holding currency notes at home and also in bank vaults, he said.
He categorically stated that he has changed his mind of resigning from the post of CB Governor as there was a progress in the path towards political stability with the appointment of a new Prime Minister.
He had made this statement at a press conference on May 11 regarding the socio political instability and his intension to resign if the situation continues with political uncertainty.
Dr. Weerasinghe expressed the belief that he will be able to work more successfully under the present setup.
The country’s inflation is expected to rise to 40 per cent in the next couple of months due to supply-side pressures, he said, adding that measures have been taken to control demand-side inflation.
On Wednesday, Sri Lanka – for the first time – defaulted payment on international bonds. The Governor pointed out that Sri Lanka is in pre-emptive default adding that the country has no ability to repay until debt restructuring.
The Central Bank will be using necessary tools available including injecting liquidity to stabilise interest rates which have doubled the current policy interest rates and to restrict imports to save much needed foreign exchange, Dr. Weerasinghe said.
Deposit margins on letters of credit (LC) will be introduced to curtail imports making it compulsory for non-essential commodity importers to pay money upfront and in advance to open LCs, he added.
The Central Bank has decided to intervene with the aim of stabilising interest rates, he said adding that they will not hesitate to use instruments at their disposal to stabilise the interest rates.
At the Treasury bill auction on Wednesday, the monetary authority rejected most of the bids in which the market rate increased to over 24 per cent, he said, adding that this practice will be continued until the interest rates moderate
