CB issues a directive on margin requirement for LCs

The rapid depreciation of the Sri Lanka rupee against the US dollar has prompted the Central Bank (CB) to issue a directive to licensed commercial banks to adopt a raft of import control measures taking pressure off the local currency.

The CB will only confine to limited interventions to prevent sharp volatility of the Sri Lanka rupee and will not intervene given the learning from the past where reserves were unsuccessfully used to defend the currency which then eventually depreciated sharply (during 2011/12 and 2015), a senior official said.

It would also look at enforcing the exporter repatriation rules to help ease the pressure on the currency.

According to Treasury sources, the private sector would be advised to use the available forward market instruments to tackle possible exposure to currency risks.

Accordingly, a 100 per cent cash margin on the total invoiced value of the imports under documents against acceptance terms for several items stipulated by the CB should be placed by the importer at the bank.

Licensed commercial banks have been directed not to grant any loan facilities to enable importers to place the margin deposits in respect of these imports.

This was revealed in a circular issued by the Director of Bank Supervision to licensed commercial banks on Thursday.

This 100 per cent cash margin require- ment is applicable for imports of vehicles, refrigerators, freezers, heat pumps air conditioners, televisions, perfume, and telephones including mobile phones, washing machines, footwear and tyres.

Tyres for vehicles, aircraft, agricultural or forestry vehicles and machines motorcycles, bicycles and three wheelers and other types of new pneumatic type, of rubber will come under the category of controlled items.

Sports footwear, Ski boots, cross –country ski foot wear, snowboard boots, football and rugby shoes have also been included in the 100 per cent cash margin category under documents against acceptance terms.

Household or laundry– type washing machines, including machines with both wash and dry, perfumes and toilet waters, pre-shave, shaving or after shave preparations, personal deodorants, bath preparations and other perfumes, and cosmetic or toilet preparations will come under the stipulated items under the 100 per cent margin requirements.

Monitors and projectors, not incorporating television reception apparatus, reception apparatus for television, whether or not incorporating radio broadcast receivers, or sound or video recording or reproducing apparatus, machines for the reception, conversation, and transmission or regeneration of voice or other data, including switching and routing apparatus are also subject to this requirement.