Sri Lankan commercial banks restrict foreign currency borrowings

In the wake of rupee depreciation to a new high, Sri Lanka’s commercial banks have been restricted of excessive foreign currency borrowings and maintaining foreign exchange reserves with the aim of preventing unwarranted macroeconomic and financial stability concerns.

The rupee closed at 168.50 ton Monday (24), after falling to an all-time low of 169.00 per dollar week.

The Monetary Board of the Central Bank has introduced a policy framework for foreign currency borrowings of licensed banks, reliable official sources said.

The objective is to address the high dependence on foreign currency borrowings and the resulting exposure of licensed banks to foreign exchange risk.

This action is also aimed at minimizing the pressure on the reserves and exchange rate of the country arising from large borrowings in foreign currency.

The Sri Lankan rupee is depreciating rapidly but it has been maintained at a stable level following intervention by the central bank, market sources said.

The Central sank has intervened to curb excess volatility in the exchange rate, sources said.