Newly appointed Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe yesterday stressed the importance of working closely with the International Monetary Fund (IMF), saying Sri Lanka will be sending a strong team to the Spring Meetings of the IMF and the World Bank, with the aim of expediting financing to the country.
Addressing his first media conference after assuming office at the CBSL, Dr. Weerasinghe recalled his long experience in dealing with the IMF and noted that the only difference with this engagement would be that there would be a debt restructuring element to the negotiations.
The Monetary Board under the purview of new CBSL Governor Dr. Weerasinghe yesterday decided to hike the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 700 basis points to 13.5% and 14.5% respectively.
The move comes as Dr. Weerasinghe expects to bring macro-economic conditions back to normal within the short-term.
Dr. Weerasinghe said, “Things will get worse before they get better.”
Dr. Weerasinghe noted that it was of little value to speak of policy missteps in the current context. He noted that there was little that could be done to prevent the high inflation rate and shortages of goods that are expected to hit the country in the coming months. He also expected the policy measures adopted by both the Monetary and Fiscal authorities of the country to result in a significant slowing down of economic growth.
Dr. Weerasinghe characterized the recent policies as ‘Modern Monetary Theory’ and noted that its consequences were quite dire. He further added that in recent times the savings brought about by the low tax and interest rate regime passed savings to the corporate sector and took away spending power from savers and pensioners. Dr. Weerasinghe noted that non-financial listed corporate entities showed disproportionate savings through a reduction in finance costs.
Dr. Weerasinghe championed the independence of the CBSL and signaled a return to flexible inflation targeting monetary policy mechanisms. He wants to take a more technical and open approach to manage monetary aggregates.
He said, “I will take steps to make the CBSL an independent organization sans any outside pressure. I have also have got many assurances that all parties will support me.”
Dr. Weerasinghe promised more data to be made public on the operations of the Central Bank and characterized previous administrations as having displayed information in a manner that might have misled outsiders.
Dr. Weerasinghe indicated changes to the pricing structures of State-provided services. He stressed that prices should have moved with international market rates and briefly noted that electricity pricing should be reformed.
Dr. Weerasinghe noted that new Finance Ministry Secretary K.M.M. Siriwardena would operate independently but in close collaboration with the Central Bank. Dr. Weerasinghe mentioned the need for internal restructuring of staff within the Central Bank to bring integrity back into the system.
Dr. Weerasinghe said he took the role under very difficult circumstances. He said, “I saw the suffering of the people of Sri Lanka and thought I can stop that suffering.” The country has witnessed increased foreign exchange inflows through formal channels with the floating of the exchange rate. Dr. Weerasinghe suggested that a floated exchange rate would remain under his tenure.
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