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Sri Lanka to buy dollars from the ‘free’ market for oil ships: Prime Minister

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ECONOMYNEXT – Sri Lanka will buy dollars from the ‘free’ market to pay for three oil ships which are anchored in the waters of the island, Prime Minister Ranil Wickremesinghe said after the country’s soft-peg lost credibility after two years of money printing and float has not yet been established.

“There are ships with petrol, crude and furnace oil anchored for 40 days in Sri Lanka waters,” Prime Minister Ranil Wickremesighe said.

“To pay the ships we will take action to buy dollars from the free market.”

Prime Minister Wickremesinghe did not elaborate what the free market was.

In the absence of money printing which de-stablizes a pegged exchange rate, or a free floating exchange rate – where forex shortages are impossible – all dollars a bought for domestic currency in a free market.

Sri Lanka has a partially controlled market (not fully reflective of the monetary policy) within the official banking system where a daily rate of around 260 rupees is quoted.

A completely free market exists in the kerb or ‘black’ market.

After Sri Lanka’s central bank printed money expanding the rush of rupee out of the country, and exchange controls were imposed, premiums in the free market went up.

However the gap between kerb market has started to narrow after interest rates were raised.

Hoarders of dollars are also discouraged when rupee interest rates go up and the return from holding rupee exceeds the expected depreciation. (Colombo/May17/2022)



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