Friday Nov 15, 2024
Friday Nov 15, 2024
Friday, 31 December 2021 00:00 - - {{hitsCtrl.values.hits}}
Akin to a New Year bonanza, the Central Bank yesterday announced a higher interest rate for foreign currency (FCY) deposits whilst separately capping maximum rates on USD-LKR swaps.
The twin moves were welcomed by the banking sector as positive.
In a directive to banks, CBSL said that the maximum interest rate offered or paid on FCY should be with a maturity of less than or equal to one year, shall be based on the simple average of the primary market yields of 364-days Treasury Bills determined at auctions held during the last calendar month of the previous quarter less 150 basis points, or 5%, whichever is higher, and with a maturity of more than one year, which shall be determined based on the market behaviour. Banking analysts said the move in effect means FCY deposits could fetch a maximum of 6.5%. In the case of Special Deposit Accounts (SDA) in FCY, the additional interest rate that can be offered or paid shall be over and above the interest rate applicable.
Analysts added that on the basis of normal FCY deposits fetching 6.5%, the maximum rate for SDA could be as high as 8.5%. CBSL said the auctions for calculating the above average rate, shall be selected based on the auction date falling within the corresponding calendar month and not the settlement date.
The maximum interest rates for the forthcoming quarter shall be computed on the last working day of the current quarter.
Separately, CBSL also said, considering recent excessive volatility observed in the USD/LKR domestic swap market, and to ensure orderly conduct of the same, licensed banks will be required to execute USD/LKR swap transactions, subject to a maximum USD interest rate of 10% per annum. Accordingly, the USD/LKR swap points will be prorated based on the above benchmark USD interest rate for the respective tenors until further notice. Sources said that the rate for USD/LKR swap hitherto was as high as 40%- 50%.
«The latest move will ensure sanity,» quipped a senior banker.
CBSL said that banks should submit details of the interest rates offered on FCY deposit products in accordance with the weekly on «Rates of Interest» and make arrangements to inform and display the interest rates offered to customers on FCY deposit products.
The latest directive will be effective from 31.12.2021 and applicable for new FCY deposits, existing FCY savings deposits and at the renewal of FCY term deposits.
The fresh moves come as CBSL tries multiple efforts to shore up foreign inflows and reserves amidst criticism over FCY shortage, associated problems, as well as the $ 7 billion debt service challenge in 2022.
On Wednesday, the CBSL revealed that the country’s official reserves position by yesterday had increased to $ 3.1 billion and that more inflows were expected to be realised by early next month.
In a statement, CBSL said that, as announced on 22 December 2021, the expected foreign currency inflows were forthcoming, and with the receipt of recent inflows, the official reserves position had now reached around $ 3.1 billion, and is expected to remain at such a level by the end of 2021 as well.
The CBSL’s Wednesday statement didn’t reveal by how much reserves have increased or the source of inflows, but forex market sources said reserves had plunged to less than $ 1.5 billion by mid-December and that the latest position was following the drawdown of Yuan 10 billion ($ 1.5 billion) swap arrangement with the People’s Bank of China.
CBSL said that as articulated in the six-month road map for ensuring macroeconomic and financial system stability, foreign currency inflows, in connection with several other facilities that are under negotiation at present, were expected to be realised in the early part of January 2022.
It said the measures taken with a view to improve foreign exchange liquidity in the domestic market, such as introduction of incentive schemes for workers’ remittances, and the rules covering the repatriation and conversion of exports proceeds were also augmenting official reserves.
“The welcome robust recovery in the tourism sector and the strong performance in exports are further buttressing the external sector. Accordingly, the Government and the Central Bank are confident that the reserve position will remain at comfortable levels throughout the year 2022,” the statement added.
