Demand for vehicle imports is declining further, Central Bank Governor Dr. Nandalal Weerasinghe said at Wednesday’s monetary policy media briefing in Colombo — and separately published registration data for August shows the slowdown he described.

The Governor attributed the fall mainly to a slowdown that began in August and said he expected it to continue. Crucially, the softening is visible ahead of the shipments themselves: “Even the letters of credit (LCs) opened for future imports are also coming down,” he said, according to Hiru News. Because an LC is opened before a vehicle arrives, that is a forward indicator rather than a record of what has already landed.

He named two policy measures as contributors: the tightening of loan-to-value (LTV) ratios on vehicle lending, and the government’s import surcharge. Imports in several other categories, including fuel, also declined.

The policy measures behind it

The surcharge is a temporary 50% charge on Customs Import Duty on new personal vehicles, imposed on 16 May and since extended to 31 December, EconomyNext reported from the same briefing. The Central Bank also raised its policy rate by 100 basis points in May.

Weerasinghe framed both the surcharge and the government’s fuel subsidy as having held inflation down. “If not for fuel subsidy and surcharge on vehicle imports, the inflation would have been higher than the current level,” he said. “There could have been higher imports and reserve building up would have been difficult.” The Central Bank held its policy rate steady on Wednesday, and inflation was unchanged at 8.0% in September.

What the August registrations show

Figures compiled by JB Securities and reported by the Daily Mirror put total vehicle registrations down 13.9% month-on-month at 45,811 in August, from 53,221 in July — extending a slide from 62,776 in May and 58,151 in June.

Motor-car registrations fell to 2,609 from 3,654, and SUVs and crossovers to 3,226 from 4,439. The electric-vehicle segment lost the most ground in percentage terms, with EV registrations down 29% to 5,084 from 7,170.

Buyers who did register a vehicle chose small ones almost without exception. Small cars made up 96.2% of brand-new car registrations — 607 units below 1,000cc and 100kW — and 97.3% of the pre-owned market, or 1,924 units. Suzuki led pre-owned registrations with 681 units, 523 of them Wagon Rs, ahead of Toyota (459), Nissan (354) and Daihatsu (350).

The same pattern held in SUVs, where small crossovers of up to 1,500cc accounted for 3,099 units, or 96% of August registrations. Toyota led with 1,186, driven by the Raize and Urban Cruiser, followed by Honda with 645 — 620 of them Vezels — then Jetour (306) and Suzuki (284).

Why it matters

Vehicle imports are one of the largest discretionary drains on Sri Lanka’s foreign exchange, and the pace of them has been a live question since the import ban was lifted. A decline in LCs, read alongside four consecutive months of falling registrations, suggests the pent-up demand that followed liberalisation is working its way out of the system rather than being suppressed at the border.

Neither the Governor nor the registration data indicates how much of the fall is policy and how much is simply exhausted demand — and the surcharge is a Finance Ministry decision currently set to lapse on 31 December, which makes the next few months of LC data the figure to watch.