CB gets tough; bans banks from buying ISBs for 3 months

Friday, 25 December 2020 01:31 - - {{hitsCtrl.values.hits}}

Latest move comes 2 weeks after flexibility given to make purchases based on new forex inflows
CB finds some banks to have purchased ISBs using inflows to current account of balance of payments, thereby adding undue pressure to domestic forex market

The Central Bank this week took a tougher stance by banning banks from purchasing Sri Lanka’s International Sovereign Bonds (ISBs) for three months.

The latest move comes after the Central Bank allowed banks to purchase ISBs a fortnight ago, provided such acquisitions are from new foreign currency inflows.

Industry analysts claimed that the tougher action of total ban comes after it was found out that some institutions used shortcuts, such as forwarding contracts on dollars, and kept purchasing ISBs.

In a fresh directive issued on Wednesday, the Central Bank said it has observed a sizable amount of investment in Sri Lanka ISBs by licensed banks thus far during the year.

“Furthermore, it has been observed that licensed banks continue to purchase Sri Lanka ISBs using inflows to the current account of the balance of payments, thereby adding undue pressure to the domestic foreign exchange market,” the directive said.

“In consideration of these developments, licensed commercial banks and National Savings Bank

are required to suspend the purchase of Sri Lanka ISBs with immediate effect for a period of

three months,” the Central Bank directive added.

With the latest directive, the Central Bank said the Banking Act Directions No.11 of 2020 – dated 11 December – on the same subject has been withdrawn, and the latest direction will be implemented with immediate effect.

The 11 December directive suspended purchase of ISBs by licensed commercial banks and National Savings Bank for six months unless such purchase is funded by new foreign currency inflows sourced from abroad.

Taking steps to stem undue depreciation of rupee, says Central Bank

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