The sustained high deficits of rupee liquidity in the domestic money market compelled the Central Bank to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposits of commercial banks in November 2018, while increasing policy interest rates to neutralise the impact on interest rates due to the permanent liquidity injection arising from the reduction in SRR. We followed this cautious approach with the broad aim of stabilising inflation at 5  mid single digit levels and anchoring inflation expectations to enable the economy to reach its potential in the medium term. In the external sector, the growth in export earnings was outpaced by the expansion in import expenditure, although earnings from tourism, workers’ remittances, foreign direct investment (FDI) and debt related inflows to the government helped cushion the balance of payments (BOP) to some extent. The BOP experienced significant pressure on account of foreign exchange outflows caused by tightening global financial conditions and the strengthening of US dollar in view of monetary policy normalisation, particularly in the United States, as well as the widened trade deficit. Similar to the pressure that was observed in other emerging market economies, these developments resulted in a sharp depreciation of the Sri Lankan rupee particularly during the second half of the year. The Central Bank intervened in the domestic foreign exchange market at times to prevent disorderly adjustments in the exchange rate, while allowing demand and supply forces of the forex market to determine its level and direction.
Such NCCTs will be subject to sanctions if they do not come into line. Moreover, banks from NCCTs are caught under the newly enacted US Patriot Act. Such banks, and any others regarded as higher risk from a money laundering perspective, will be subject to increased scrutiny by their US correspondent banks and the US authorities. At worst, higher risk foreign banks could eventually find themselves shut out of the US payments system. Hong Kong has a good reputation internationally as a financial centre that takes seriously the need to combat money laundering. I am sure that you will agree that we all have a vested interest in keeping it that way - which means that we need to keep in line with international standards as they evolve. The role of the HKMA The role of the HKMA in this is to work with the other relevant authorities in Hong Kong - the Commissioner for Narcotics, the law enforcers and other regulators - to ensure that we have an effective framework to deter, detect and report cases of money laundering. Our particular responsibility relates to AIs. It is our job to verify that AIs have adequate policies, procedures and controls in place to enable them to: •  identify suspicious customers and transactions;  •  report suspicious transactions to the Joint Financial Intelligence Unit (“JFIU”); and  •  assist the law enforcement authorities through providing an audit trail.