The Central Bank would not use reserves to defend the exchange rate in the future, said Central Bank Governor Dr. Indrajit Coomaraswamy.
“We want to make sure that we do it gradually and to ensure that the economy remains competitive and the exchange rate contributes to it,” he said at the 22nd convocation of the Institute of Bankers of Sri Lanka (IBSL) held at the BMICH, last week.
Central Bank of Sri Lanka (CBSL) intends to manage the exchange rate flexibility and the framework is over time - gradually - to get to the point where the Real Effective Exchange Rate (REER) is 100.
“The Central Bank will make sure there is no rapid fluctuation or volatility in the exchange rate. Moreover, it will be very watchful to see that there is no speculation and we will move decisively to deal with anybody who embarks on speculative activities.”
Dr. Coomaraswamy further noted that it is not profitable to have an export performance improvement without a competitive exchange rate.
In addition, CBSL is introducing a flexible inflation targeting regime for the monetary policy which would enable the CBSL to have a much more forward looking and proactive monetary policy.
Moreover, this would enable the Bank to move quickly and early in terms of interest rate movements.
“We are able to smooth the interest rate cycle and not to have the sharp volatilities and fluctuations as seen in the past.” Commenting on local banking sector, Dr, Coomaraswamy noted that strong capital liquidity requirement and macro-prudential regulations should provide enough cushions for the banking sector to face any turbulence in the coming years.
The Governor further noted that plans were also put in place to support the growth framework of the economy in the area of investment policy and promotion, trade policy and trade facilitation.
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