The Central Bank anticipates a growth of 5.5 to 6.0% in 2017, Central Bank Govenor Dr Indrajit Coomaraswamy said at the Road Map: Monetary and Financial Sector Policies for 2017 and Beyond launch in Colombo yesterday.
“During 2016, we have implemented several proactive policy measures in order to ensure economic and price stability.These policies have helped curb demand pressures in the economy and maintain inflation at a low level,” he said.
With the view of strengthening the Exchange Control Department, a new Foreign Exchange Act has been designed.
Inflation continued to remain at low levels although there were some upward pressures during 2016. Accordingly, headline inflation, as measured by the year -on-year change in the Colombo Consumers’ Price Index was 4.1% in December 2016 compared to 2.8% in December 2015. Core inflation, based on CCPI, increased to 6.3%, year-on-year, at end 2016 in comparison to 4.5% at end 2015, while NCPI based core inflation was 6.8%, year-on-year,in November 2016.
Earnings from exports declined by 2.6% during the first ten months of 2016, while the expenditure on imports increased marginally by 0.2 per cent. As a result, the cumulative deficit in the trade account increased by 3.7% to US dollars 7.2 billion during the first 10 months of 2016.
Meanwhile, during 2016, Sri Lanka entered into a three year Extended Fund Facility (EFF) of SDR 1.1 billion (approximately US dollars 1.5 billion) with the IMF to strengthen the external position of the country. Reflecting these developments, the level of gross official reserves was estimated to be around US dollars 6.0 billion by end 2016.
The Governor said that they will also ensure that the monetary targeting framework would be gradually replaced by migrating towards a flexible inflation targeting framework.
He said that the Central Bank and the IMF in developing a structural model -based Forecasting and Policy Analysis System (FPAS) to strengthen the monetary policy decision making process and to support Sri Lanka’s transition to a flexible inflation targeting regime.
Inflation is expected to remain at mid- single digit levels in the medium term. As such, it is expected that the low inflation environment that prevailed for several years would be sustained in a range of 6 percent in the medium term, he said.
The revamped corporate website of the Central Bank is expected to provide high quality content with dynamic and interactive features.
The capital levels of licensed finance companies (LFCs) and specialised Leasing Companies (SLCs) are expected to be strengthened further. Accordingly, existing LFCs and SLCs will be required to maintain a higher minimum core capital than the prevailing requirement of Rs. 400 million and Rs. 300 million, respectively. These will be increased to Rs. 2 billion and Rs. 1 billion, respectively on a staggered basis to facilitate the smooth transition.
“We want to make sure that the Sri Lankan Rupee notes and coins are available to the public in required denominations upon demand without any shortage. We plan to develop a new mechanism for islandwide coin distribution and arrange programmes with banks to collect the coin tills issued to the public,” he said.
“We are working to cooperate with the Euroclear System to facilitate us to trade our bonds in their system in the future,” he said.There will be a new Public Debt Act. A team of professionals is consolidating all the statutes relating to debt management and a separate Debt Management Unit is being set up at the Ministry of Finance, the governor said.
A new loan scheme for the MSME sector development and employment generation has been designed jointly by the Central Bank and the Ministry of National Policies and Economic Affairs.
The maximum amount of the grant will be Rs.50,000 and the maximum loan amount of Rs.250,000 will be given at an interest of 5.5 per cent per annum.The scheme intends to allocate Rs. 4 billion to the needy sectors.
He said the Asian Development Bank will fund a loan scheme in Sri Lanka to encourage use of roof top solar power.The loan scheme will be implemented with the collaboration of the
National Policy and Economic Affairs Ministry, the Power and Renewable Energy Ministry, the Sustainable Energy Authority and other stakeholders.
Foreign exchange transactions to be further relaxed
The Central Bank has implemented several new policy measures to further relax foreign exchange transactions.
“We want to emphasise that all our policy measures are in line with the current policy stance to promote the competitive advantages of Sri Lanka in global business activities resulting in the enhancement of investor confidence, strengthening of foreign reserves and stabilising the foreign exchange market,” Central Bank Governor said yesterday.
“The government has identified that it is timely to have a new Foreign Exchange Act.”
As proposed in the Budget 2017, the new Foreign Exchange bill will be presented to Parliament this year. “In addition, the Central Bank is in the process of further relaxing foreign exchange transactions.”
The Governor said the Central Bank will esta
blish an Electronic Trading Platform and a Central Counter Party (CCP) arrangement for government securities along with required legal reforms to deepen and broaden the secondary market for government securities.
Similarly, a mechanism to disseminate secondary market information on debt instruments will also be established through the proposed e-trading platform and the clearing house.
Hence, we will have a new set of operational processes for government securities in the secondary market as well, in the near term.
(MFJ)
New regulatory framework of primary dealers
“We have already revisited the existing regulatory framework of primary dealers and based on those findings, we will introduce an appropriate regulatory framework for primary dealers in line with the latest developments in the market by benchmarking the global standards”.
“We also expect to establish and implement a restructuring mechanism for distressed primary dealers, the Governor said.Also two internal investigations are underway on Perpetual Treasuries dealings by Central Bank”, he said. (MFJ)
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