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High interest rates, inflation temporarily reduce vehicle prices

30 Oct 2022

  • 80-90% of vehicles on leases: CMTA 
  • Increased policy rates drive inability to settle vehicle loans 
By Tanya Shan The temporary drop in vehicle prices witnessed in the past few weeks is mainly due to increased interest rates and soaring inflation, Ceylon Motor Traders’ Association (CMTA) Chairman Charaka Perera said.  Speaking to The Sunday Morning Business, he stated that although various reports had been circulating regarding a decline in vehicle prices, the actual reason was that people’s disposable income had taken a hit and owners of leased vehicles were finding it difficult to continue their payments.  “About 80-90% of the vehicles in Sri Lanka are on leases. When the Central Bank of Sri Lanka (CBSL) increased lending rates, most of these people found it hard to pay their loans, so they are selling at a comparatively lower rate. Additionally, rising inflation too has affected people’s disposable income,” Perera stated.  According to him, the large talent migration Sri Lanka is presently experiencing is also driving this temporary price drop. He added that vehicle owners who were planning to leave the country were selling their vehicles at comparatively cheaper prices as they were not willing to wait until the vehicles were sold.  He attributed the price drop to these factors, since vehicle demand and supply figures remained more or less the same, given that the vehicle import ban was still in place. Perera noted that even if the Government permitted vehicle importation, local selling prices would not reach pre-pandemic levels as the dollar had appreciated almost twofold against the Sri Lankan Rupee.   Import restrictions imposed to prevent a foreign exchange crisis initially led to skyrocketing vehicle prices soon after the pandemic spread. Even though the initial ban was imposed only as a short-term measure, the Government later announced that vehicle imports would be restricted for another two years. It also ruled out a possible vehicle shortage, declaring that the country had enough vehicles in stock for the next two years. In 2019, Sri Lanka spent about $ 815.7 million on vehicle imports, compared to $ 1.5 billion the previous year. In August, the CBSL stated that expenditure on motor vehicle imports had declined by 80.9% due to the import restriction measures taken by the Government and the Central Bank since March 2020.  


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