Press briefing of Cabinet Decision taken on 2020-09-21

Proposal for the Central Bank of Sri Lanka to offer USD/LKR Buy-Sell Currency Swaps for tenors between one to two years

- The Central Bank of Sri Lanka has identified the need to facilitate the non‑resident investors to invest in Governments Securities and in other sectors with a view to encouraging foreign exchange inflows to the Country. Accordingly, the Monetary Board of the Central Bank of Sri Lanka has permitted to introduce the facility to offer USD/LKR Buy-Sell Currency Swaps for tenors between one to two years. As such, the arrangements submitted by the Prime Minister in his capacity as the Minister of Finance to pursue action as follows with the objective of hedging the foreign exchange risk that may occur to the Licensed Commercial Banks accordingly, was approved by the Cabinet.

* To carry out the near and the far legs of the swap under the same exchange rate.

* To permit premature unwinding of swaps at the prevalent exchange rate with a penalty.

* This facility is applicable only if there is foreign exchange inflows into the country and subject to a minimum of US$ 25 million and a maximum of US$ 1000 million.

* In the event the US$/ LKR exchange rate depreciates during the implementation of this programme, the loss that may cause to the Central Bank of Sri Lanka will be set off in future when transferring its dividends to the General Treasury enabling to treat the loss to the Central Bank as a cost to the General Treasury.