Moral Suasion

Mar 14, 2012 (LBO) – Sri Lanka’s central bank has asked banks to limit credit to buy motor cars, in a bid to reduce imports, as the country faced balance of payments pressure and lost more than a quarter of its foreign reserves. The Central Bank said vehicle dealers had built up large inventories of cars over the past few months and banks may “prudently consider the limitation of credit for the import of motor vehicles, which would, in turn, lead to the easing of pressure on import expenditure.”

Spot US dollar was quoted around 124.60/80 rupees in afternoon trade.

Sri Lanka has in the past jacked up taxes on goods considered by rulers and state officials to be ‘luxury’ for ordinary citizens, including motor cars which they get either completely tax free or at tax-slashed prices.

LBO’s economist columnist fuss-budget warned shortly after the sale of a billion dollar bond in July, based on credit and liquidity trends that Sri Lanka would face another balance of payments crisis unless rates were raised or the rupee was allowed to fall. (Thirft Column – BOP 101).

In February the Central Bank said it will not intervene in interbank markets but will give d