Sri Lanka's credit system liquidity is expected to receive a boost after cash tied up in import letters of credit (L/Cs) for cars was released into the banking system according to the governor of the Central Bank of Sri Lanka.

Indrajit Coomaraswamy says that recent US dollar purchases have also injected new money into the credit system.

L/C margin scrapped

The central bank is expecting liquidity to be released from ending a 200 per cent margin on import L/Cs imposed in 2018.

"Margin requirements introduced to curtail motor vehicles and non essential imports last year which was putting pressure on [the] trade account and currency were taken off," Coomaraswamy said.

"That will be releasing 25-30 billion rupees (US$144-172 million) in liquidity," he said.

US dollar injection

The central bank has also purchased about US$150 million in a move aimed at improving exchange rate stability.

Sri Lanka's credit system runs into liquidity shortages in April as people draw money out of banks for traditional seasonal festivities.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.