Friday, June 14, 2024
spot_img

Latest Posts

New CB Chief attacks exchange rate policy urging the public patience

The newly appointed Central Bank Governor Nandalal Weerasinghe issued a strong new policy directive, saying the Central Bank (CB) would curb excessive money printing, reduce rampant inflation, reduce commercial borrowings and keep the runaway US dollar in check.

He faulted the way the exchange rate was managed by his predecessor saying the fixed rate was too long whilst on the other hand free float was not credible in terms of timing and sequencing.

He said that the rupee was artificially protected for too long with a fixed maximum rate thereby incentivising the black market.

On Wednesday, hours before the new Governor assumed duties, Rs. 119.08 billion of new money was printed while the total money stock printed since January 1, 2021 amounted to a whopping Rs. 1.77 trillion, official sources said. Food inflation has surged to 30 percent last month, according to official statistics.

At a media briefing late on Friday after a meeting of the Monetary Board, Governor Weerasinghe said the CB increased policy lending rates by 7 percent on Friday, the highest interest rate hike in recent times.

Economists said the move would increase deposits of banks, reduce borrowings, curb inflation (due to less spending by the people) and in turn curb consumption demand, while less demand on imports would mean less pressure on the rupee vis-à-vis the dollar.

The Governor said he had a close relationship with new Treasury Secretary Mahinda Siriwardena. Officials said that previously, former Governor Prof. W.D. Lakshman had been subjected to heavy influence by then President’s Secretary Dr. P.B. Jayasundera and the Government.

At a meeting in July 2020, President Gotabaya Rajapaksa criticised Prof. Lakshman for not resorting to more money printing. Ironically, Dr. Weerasinghe, who was then the Senior Deputy Governor, was also present at the meeting. Thus, it remains to be seen how he would maintain the independence of the institution, officials said.

Dr. Weerasinghe also said he had the support of both the Government and the opposition. At the media briefing, he said Sri Lanka’s economy was now heading in a critical direction like a vehicle moving on a slope without brakes and it should be halted taking necessary action for some time without allowing it to crash.

An urgent policy document devised jointly by the CB and the Finance Ministry will be submitted to the Cabinet of Ministers, suggesting immediate measures that should be taken to tackle the present economic downturn.

The proposed policy package will include immediate measures to increase revenue with tax revisions, export promotion, curtailing expenditure by pruning additional expenses of ministries and state institutions and halting the heavy spending for infrastructure projects such as road development.

Dr. Weerasinghe expressed the belief that the current critical situation could be turned around with necessary monetary and fiscal policy initiatives working in close collaboration with the Finance Ministry. Excess money printing to keep the rates lower through the CB has resulted in skyrocketing of inflation in the past and it has to be addressed introducing necessary policy measures.

The rupee float has seen it depreciate by around 60 percent, he said, adding that the flexible exchange policy would continue and he believed it would stabilise with fluctuations in the market after some time.

For some time, the people would have to bear the economic hardships triggered due to not taking right decisions at the right time in fiscal and monetary management, he added.

“First of all, the Monetary Board, along with myself, is of the view that we have to be very proactive with our monetary policy decision making,” Dr. Weerasinghe said. “We have not been so proactive in the past. That is why we have come to this kind of very difficult situation.”

He disclosed that the CB would appoint legal and financial advisors for debt restructuring within two weeks while expediting talks with the International Monetary Fund (IMF).

He disclosed the technical negotiations with the IMF had already started with the Treasury Secretary heading the technical discussion. He noted that Finance Minister Ali Sabry would lead the Sri Lanka team at the IMF talks on April 18.

Latest Posts

spot_img

Don't Miss

Stay in touch

To be updated with all the latest news, offers and special announcements.