The Central Bank of Sri Lanka (CBSL) has imposed a 100 per cent margin deposit requirement against letters of credit (L/Cs) opened at commercial banks for imported motor vehicles.

The requirement does not apply to commercial vehicles, the bank said.

Volatile markets

The decision to impose the margin deposit requirement is based on turbulent global markets and foreign exchange volatility CBSL said.

The bank added that high volumes of motor vehicle imports are the result of unwarranted speculation on future exchange rate movements, interest rate fluctuations and budgetary measures.

Macroeconomic threat

Issuing a stern warning, the bank said if the issue of motor vehicle imports was not addressed, it could threaten macroeconomic stability.

"The imposition of the margin deposit requirement, together with the measures already taken by the government with regard to taxes applicable on motor vehicle imports, is expected to curb non-essential imports of motor vehicles, and ease undue pressure on the current account of the balance of payments and the exchange rate," the bank said in a statement.

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