ECONOMYNEXT – Sri Lanka has placed a ceiling rate on interbank foreign exchange swaps despite there being no dollar liquidity window for banks in a severe liquidity crunch, in the latest control slapped on financial markets hit by forex shortages from liquidity injections.
Sri Lanka banks face severe dollar funding crunches either after paying for essential import bills ending up with a negative net open exposure or buying dollar denominated assets like Sri Lanka Development Bonds.
With credit downgrades hitting funding lines, banks borrowed dollars at rates as much as 50 percent to cover themselves in recent weeks.
“Considering recent excessive volatility observed in the USD/LKR domestic swap market, and to ensure orderly conduct of the same, licensed banks are hereby instructed to execute USD/LKR swap transactions, subject to a maximum USD interest rate of 10 per cent per annum,” the central bank said in…
