“Inflation to mid-single digit level by end 2023”
The Central Bank expects inflation to come back to mid-single digit level by the end of next year.
Having seen the threat of price instability, Central Bank Governor, Dr. Nandalal Weerasinghe said sharp therapies were introduced to manage inflation, which was supposed to hit hyper inflationary levels earlier.
“We’ve seen positive results owing to proactive measures taken by the CBSL and as per the CBSL projections, inflation expectations are expected to further come down,” Dr. Weerasinghe told the Sri Lanka Economic Summit 2022, held under the theme ‘Resetting from Turmoil to Opportunity’ at the Shangri la Hotel, Colombo on Tuesday.
Speaking on interest rates, Governor Dr. Weerasinghe stated the CBSL has observed a huge premium between market rates and policy rates mainly due to uncertainty in the domestic debt restructuring process, which is driving the government security yields significantly high.
Despite the high cost of operations, banks are competing with each other thereby offering higher interest rates for deposits. Dr. Weerasinghe said.
“We’ve asked banks not to compete with each other to attract deposits and we at CBSL encourage banks to visit the Central Bank to obtain the required liquidity facilities. That would eventually help the banks to bring down the market rates.
The Governor also asked the short- term borrowers not to borrow from the banks at 30-35% rate in future.
“We’re closely monitoring the market rates and the inflation path. If those rates are not going to come down in the next couple of weeks, we will use alternative instruments to push banks to bring the rates down.”
New Central Bank Act to comprise modern features
Speaking on the enactment of New Central Bank Act which enables the CBSL operate independently, Central Bank Governor Dr. Nandalal Weerasinghe said, as per the current act, the CBSL has authority to directly finance via subscribing to treasury bills in the primary auction and with the new ACT coming into play, the CBSL will be prohibited from directly financing budget deficit through primary auctions.
According to Governor Dr. Weerasinghe, the new Act will comprise modern features required for the CBSL to operate independently. In addition, several laws will be included relating to macro prudential surveillance, liquidity position of banks, banking Act and many others.
According to Governor Dr. Weerasinghe, with the New Act coming into effect, the Treasury secretary will no longer be a member of the Governing Board going forward and he will have no authority to influence Monetary Board decisions.