CB intervenes to clear containers stuck at port due to forex shortage

The Central Bank has assisted importers in clearing their shipments since the country started experiencing foreign exchange shortages amid slowdown in foreign earnings and sizeable foreign debt settlements.

As the Central Bank tightened foreign exchange outflows in June under these circumstances, importers ran into difficulties when opening Letters of Credit (LCs) with banks. 

Banks practiced self-restraint in foreign exchange issuance after the Central Bank asked banks to manage their foreign exchange outflows with inflows as the Central Bank stopped providing dollars from its reserve for trade transactions. 

Meanwhile, increased speculation and front loading of imports caused by the expectation of further weakening of the rupee against the dollar and the uncertainty over possible banning of further imports by the government led to rationing of dollars when opening LCs and quoting rates well over the official rate, which hovers around Rs.203 a dollar. 

While the importers were getting dollars at rates between Rs.210 to Rs.220 last week from banks, the kerb market rates for dollars had hovered around Rs.228. 

 “Under the current situation when a letter of credit is opened by a bank and when they could not make the payment, we were able to find dollars from another bank on many occasions when we became aware that a section of goods or rather containers were stuck at the port,” said the Central Bank Governor, Professor W.D. Lakshman. 

“In the recent past we have engaged in facilitating payment for such containers stuck at the port and getting them freed after discussing with the banks,” he added. 

While he acknowledged that the said mechanism although was not the best, it was the least damaging one given the circumstances. 

“This is not the best method but the one with the least damage under the circumstances,” Professor Lakshman stressed.

Central Bank on Thursday raised its key rates by 50 basis points while increasing the banks’ mandatory reserves requirement by 200 basis points, effective September 01 with the aim of partly bridging this wide gap between the official rate and the rates offered by banks for importers and in the grey market rate. 

However, the efficacy of these monetary policy actions is questioned by a section of analysts should the Central Bank continue to inject liquidity after rejecting bids of some maturities at the auctions for treasury bills as has been the practice so far.