Liberty

Jan 02, 2014 (LBO) – Sri Lanka has lifted a 100 percent cash margin requirement to import cars with immediate effect, as the exchange rate came under appreciating pressure, and the monetary authority held it down. The Central Bank said the restriction imposed on August 30, 2013 has been removed.

The monetary authority has been buying dollars heavily in recent weeks, to prevent the rupee from appreciating as credit weakened.

Sri Lanka has the habit of trying to restrict two types of imports – cars and oil – whenever exchange rate troubles come up and ignoring all other imports, to the amusements of some observers.

The curbing of one import simply results in credit or spending being channeled into some other import.

Though exchange rate and balance of payments troubles are related to money and credit, particularly central bank credit, analysts say due to strong Mercantilism prevalent in the country, exchange rate troubles are linked to trade and deficits.

Analysts say Sri Lanka’s authorities also still impose price controls and generate shortages. The latest such drama involves milk powder.