The Monetary Board under the purview of new Central Bank Governor Dr. P. Nandalal Weerasinghe decided to hike Standing Deposit Facility Rate and Standing Lending Facility Rate by 700 basis points to 13.5% and 14.5% respectively. Dr Weerasinghe noted that the move comes as the CBSL expects to bring macro-economic conditions back to normal within the short term.
Dr. Weerasinghe made these observations following the monetary policy announcement at the Central Bank. Dr. Weerasinghe said, “Things will get worse before they get better.”
He opined that there was little that could be done to prevent the high inflation and lack 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 observed 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.
The governor championed the independence of the Central Bank and further signalled a return to flexible inflation targeting monetary policy mechanisms and his intention to take a more technical and open approach to manage monetary aggregates. The governor said, “I will take steps to make the CBSL an independent organization sans any outside pressures. I have also 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. He stressed the importance of working with the IMF noting that in the coming (April 18) Spring Meetings of the IMF and the World Bank, Sri Lanka will be sending a team with the aim of expediting financing to the country. Dr. Weerasinghe touted his large experience with 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. He promised an honest administration.
Dr. Weerasinghe signalled changes to the pricing structures of state-provided services. He noted that prices should have moved with international market rates and briefly noted that electricity pricing should be reformed. He said that new Finance Ministry Secretary K M M Siriwardena would operate independently but in close collaboration with the Central Bank. Dr. Weerasinghe signalled some internal restructuring of staff within the Central Bank to bring integrity back into the system.
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 a floated exchange rate would remain under his tenure.
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