Sri Lanka Central Bank Optimistic about recovery
Governor of the Central Bank of Sri Lanka (CBSL) Dr. Nandalal Weerasinghe
yesterday (19) said there was some political and social stability in the country
and it would help the CBSL achieve some success in its endeavours.
Dr. Weerasinghe said so responding to a question posed by a journalist about the
Governor’s earlier claim that he would resign from his post if political
stability could not be restored within two weeks.
“Now, we have a Prime Minister. We have a cabinet. The Parliament is in session.
We expect that a Finance Minister will be appointed soon. There is no violence
now. Peaceful protests and demonstrations do not affect political and social
stability. I think the country is on the right track. Most MPs have expressed a
desire to work together. I think things will become more stable soon,” he said.
Inflation in Sri Lanka would decrease in the coming months due to the corrective
policy measures of the Central Bank and the expected improvements in both
domestic and global supply conditions, the Central Bank has said in a press
Inflation is projected to escalate in the near term on account of domestic
supply shortages, increased global commodity prices, the effects of the large
depreciation of the Sri Lanka rupee against the US dollar thus far during the
year, along with the impact of aggregate demand pressures.
“However, this will change in the coming months and the bank expects that the
recent tightening of monetary conditions and the strengthening of monetary
policy communication will help anchor inflation expectations of the public in
the period ahead.
“The Central Bank expects to minimize excessive volatility in the domestic
foreign exchange market through tightening of the monetary policy stance,
restrictions on imports on open account terms, and the reduction in the
proportion of mandatory foreign exchange sales by the banks to the Central Bank.
“The Central Bank expects an increase in workers’ remittances due to the notable
reduction in the gap between the official exchange rate and the rate offered by
the grey market and the continued increase in migration of workers.
“The near term outlook of the tourism sector is likely to remain unfavourable
due to both global and domestic factors.
“Meanwhile, gross official reserves as of end April 2022 were provisionally
estimated at US dollars 1.8 billion, including the swap facility from the
People’s Bank of China equivalent to around US dollars 1.5 billion, which is
subject to conditionalities on usability.”
The Central Bank and the government have commenced technical level discussions
with the International Monetary Fund aimed at working towards a programme to
address the macroeconomic challenges faced by the economy while expeditious
arrangements are being made to commence the external debt restructuring process.
“Negotiations have already begun with bilateral and multilateral partners to
obtain bridging finance in order to secure foreign exchange required to finance
imports of essential goods and strengthen the social safety net programmes.
“Economic activity is expected to be affected considerably by the ongoing supply
shortages, energy related issues and social tensions, as reflected by several
leading indicators. Demand management policies of the Central Bank and
anticipated fiscal consolidation measures are also expected to keep aggregate
demand subdued during the year.
“Global economic growth is also expected to moderate in response to the
tightening of monetary policy by the central banks globally to counter
inflationary pressures along with the spillover effects of the geopolitical
tensions in Eastern Europe.
“After carefully considering the current and expected macroeconomic developments
both globally and domestically, the Monetary Board of the Central Bank of Sri
Lanka, at its meeting held on 18 May 2022, decided to maintain the Standing
Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of
the Central Bank at the current levels of 13.50 per cent and 14.50 per cent,
“The Board was of the view that the policy measures that have already been
implemented by the Central Bank would continue to be further transmitted to the
financial markets, while some signs of tighter monetary policy are already being
observed in real economic activity. The Central Bank would continue to monitor
domestic and global macroeconomic and financial market developments and stand
ready to take appropriate measures proactively to help reinforce greater
macroeconomic stability in the economy in the period ahead.”
“In order to prevent further deterioration of economic conditions and complement
the efforts of the Central Bank implemented thus far, urgent measures are
required to restore greater political stability through consensus governance and
“In addition, swift policy actions are required to strengthen the fiscal
performance that would help avoid excessive reliance on monetary financing and
maintain fiscal sustainability over the medium term. Furthermore, expeditious
and transparent revision of tariffs in the energy sector remains a priority in
order to strengthen the financial position of energy-related state owned
business enterprises, while improving the efficiency of social welfare
programmes to support the vulnerable groups of the society impacted by the
unprecedented economic circumstances.”
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