LNP – CB to propose resumption of car imports paid via foreign currency

The Central Bank is expected soon forward a proposal to the government for consideration, urging to explore the possibility of resuming car imports paid via foreign exchange as vehicle imports remain suspended for 18 months, exerting pressure on the country’s foreign exchange since the onset of the pandemic last year.

Central Bank Governor, Ajith Nivard Cabraal looked at the merits of the proposal made by some sections recently to the effect of allowing vehicle imports paid through foreign currency as such a process, if could be put into place, would enable the people to bring down the vehicles they need without putting an additional pressure on domestic foreign exchange market.

Despite the pandemic-induced foreign currency shortage, which came to a head by the middle of this year, people are increasingly growing impatient to be able to own a vehicle of their choice but are deprived of importing vehicles due to the ban in effect since March 2020.

While there were some expectations and indications from the government at the start of the year for some relaxation of the restrictions towards the end of the year due to a resurgent economy, the re-emergence of the virus since April and the prolonged economic restrictions that ensued continued to dampen the key inflows into the country, making such hopes elusive.

“So, we have a proposal that if the vehicles could be imported paying in foreign currency and if the related taxes could be paid in foreign currency, by which way we will receive foreign currency while at the same time the good required by the country (in this case the vehicle) can also be brought down,” Cabraal said last week responding to a question raised on the matter at the press briefing held following the Monetary Policy announcement.

The Central Bank is also observing a bubble being formed in the domestic vehicles market, which could threaten the financial system stability as bulk of these vehicles are financed through vehicle leasing by banks and licensed finance companies.

Maintaining price and financial system stability are key objectives of the Central Bank.

“We are conscious that we don’t want to see any bubbles being formed in the prices of certain items. We now see a bubble is being developed in the case of vehicle prices. It could deal damage to the system in the future,” Cabraal noted.

However, automobile prices have risen globally as a result of shortage of chips, which are used extensively in modern car manufacturing.

For instance, in the United States, the largest automobile market in the world, used cars and trucks prices have surged by 24.4 percent while the new cars and trucks have risen by 8.4 percent from a year ago, according to the consumer price index data for September gathered by the US Labour Department.