Sri Lanka’s tea exporters can reduce the current high interest costs by reducing the credit periods given to buyers, Central Bank Governor Nandalal Weerasinghe said, while the industry officials said credit was a key reason for high Ceylon Tea prices.
Sri Lankas’s central bank has allowed rates to go up in April 2022 to prevent possible hyper-inflation and further collapses of the rupee which fell from 200 to 360 to the US dollar after two years of money printing to mis-target market interest rates.
Now lending rates are above 25 percent and 12-moth inflation to September was 68.2 percent by the most widely watched Colombo Consumer Price Index with prices in the non-traded sector yet to go up.
With the rupee falling and dollar tea prices also up, the trade required about 9 billion rupees in financing for an auction or around 450 billion rupees a year, which was treble the volume last year, outgoing Ceylon Tea Traders Association Chairman Jayantha Karunaratne said.
In rupee terms tea prices were up around 150 percent, he said. Exporters were given 180 days to bring down export proceeds by the central bank.
“That does not mean you have to give 180 days credit to your buyers abroad when the country is in a balance of payments crisis, when our banks are in a situation when they cannot open an LC for the other side to import without advance payment here,” Governor Weerasinghe said.
Some of Sri Lanka’s low grown teas, which enjoy the highest prices are bought by developing or emerging countries in Central Asia, Middle East and also Turkey which are burdened by some of the worst central banks in the world with high nominal rates and sometime difficulties in remitting foreign exchange.
Sri Lanka’s tea prices are high also due to fast shipping times as well as credit, which reduced the total costs of importing and selling Ceylon Tea, industry officials have said, compared to other auctions which are not located near ports where mainlines call several times a week.
Sri Lankan tea exporters were also well versed in selling to countries in turmoil and hit by sanctions without formal pre-shipment credit, Karunaratne said.-EconomyNext (NewsNow)
