April 08, 2009 (LBO) – Sri Lanka’s central bank said it has lifted the 100 percent margin deposit requirement against Letters of Credit for selected categories of vehicle imports from Wednesday.
The government is now negotiating with the International Monetary Fund on a bail-out package. The margin was imposed as a monetary policy measure in view of the expansion of money and credit aggregates, which caused pressure on the exchange rate and the balance of payments, the bank said in a statement.
“As a result of this and several other measures, the desired impact has already been achieved with reduced inflation and the deceleration of the monetary aggregates,” the central bank said.
“Accordingly, there is now no further need for such a policy in the framework for more relaxed monetary policy in the context of reduced inflation and more favourable inflation expectations outlook.”
The government imposed several curbs on imports when a balance of payments crisis developed after September 2008, following an unsustainable dollar peg defence that drained reserves and encouraged capital flight.