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JB Securities, a Colombo-based brokerage, said overall vehicle registration were down 25 percent to 34,293 units in August and there were unsold vehicles with importers.
"There are yet a lot of inventory of unsold cars in yards or on the water thus one will not see a dramatic fall in registrations in the next 3-4 months until it is sold," the brokerage said in a note to clients.
"There are noticeable volumes in premium small engine cars due to a relatively lower rate of excise duty – these are entry level models."
Sri Lanka has cracked down on imports of cars amid policy errors by the central bank in liquidity management which has de-stabilized a soft peg with the US dollar.
Sri Lanka operates a highly unstable foreign reserve collecting soft-peg with the US dollar, involving a de facto external anchor with an undefined convertibility undertaking.
The regime suddenly shifts to a floating rate with a domestic anchor made up of a wide near-double-digit inflation target with unsterilized excess liquidity collected during the pegging period intact, sending the rupee sliding down forcing currency defence.
Money is then injected to sterilize the interventions and rates down, below the ceiling policy rate of 8.50 percent.
Term money is also injected at rates below the Sri Lanka Interbank Offered Rate for the tenor, which tends to keep swap rates down. Higher forward rates will encourage exporters to sell, analysts say.
Dollar for dollar, car imports tend to bring the highest revenues for the government. Falling car imports also hurt state revenues, forcing more borrowings and higher interest rates, which may require more money to be printed to keep rates down. (Colombo/Oct17/2018)