Cabinet approves forex cover for investors to boost inflows into local-currency bonds

The Central Bank of Sri Lanka has identified the need to facilitate non-resident investors to enable to invest in government securities and other sectors to encourage the inflow of foreign currency into the country, the state information office said. Accordingly, approval has been given to introduce US Dollars/Sri Lankan Rupee buying and selling exchange facilities for one or two years by the Monetary Board of the Central Bank. Hence, the Cabinet of Ministers approved the proposal presented by the Finance Ministry to take the following measures to minimize the foreign exchange risk that may occur to Licensed Commercial Banks.
  1. Conducting the initial foreign exchange transaction and subsequent exchange transaction at the same exchange rate.
  2. Concerning the foreign exchange transactions prior to the maturity of the investment, granting permission to exchange at the same foreign exchange rate subject to a penalty.
  3. This facility is applicable only if there is foreign exchange inflow to the country and subject to a minimum investment of US$ 25 million and a maximum of US$ 1000 million.
  4. In the case of depreciation of the exchange rate of the US Dollar against the Sri Lanka Rupee during the applicable period, the Central Bank will compensate the loss incurred when transferring its dividends to the Treasury in the future. This is because any loss that could be incurred to the Central Bank is considered as a cost to the Treasury.
   

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