Sri Lanka has imposed a 100 per cent cash margin on letters of credit (L/Cs) for motor vehicle imports.

The margin, which takes effect immediately, aims to discourage what finance minister, Ravi Karunanayake, described as "unnecessary imports."

Cash imports

The minister said he has imposed the L/C cash margin as part of the government's efforts to diminish dollar outflows and stem a decline in value of the Sri Lankan rupee.

"We have information that there are unnecessary vehicle imports taking place. From this moment onwards, there won't be margin for L/Cs. A 100 per cent has to be paid," he told local media, adding that this is a temporary measure.

Currency depreciation

The value of the Sri Lankan rupee declined by 4.6 per cent last month after the central bank effectively floated it on 4 September 2015.

The value of vehicles imported in the first seven months of this year almost doubled to US$744 million according to central bank data.

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