The Central Bank of Sri Lanka predicted an economic impact smaller than for previous waves of the COVID-19 pandemic.
The Central Bank noted that the country is now in a better position in terms of foreign financing agreements and that large FDI investments were expected following the legal framework governing the Port City.
CBSL Governor Prof. W D Lakshman based the prediction on; the selective nature of mobility restrictions during the current wave, the ongoing vaccine drive, and the fact that the economy is getting used to the work from home culture.
Prof Lakshman was speaking at the Press Conference following the Monetary Policy announcement yesterday. The accommodative monetary policy was maintained with the Standing Deposit Facility Rate and the Standing Lending Facility Rate at their current levels of 4.50 percent and 5.50 percent respectively.
Sri Lanka is expected to draw on its IMF Special Drawing Rights for US$ 800 million. The board papers are expected to be handed in June and the allocation is expected to be dispersed in August.
On top of the IMF agreement, the Central Bank has had positive discussions with South Asian Central Banks and with Central Banks in the Middle East and is confident of additional swap and lending agreements if the need arises.
Prof Lakshman noted the US$ 1.5 billion approx swap agreement with the People’s Bank of China, a US$ 500 million facility from the China Development Bank, AIIB received by state banks and a development loan from the EXIM Bank of Korea.
The Sri Lankan corporate and financial sector has attracted investment from international organizations like the IFC. The government has been able to secure funding from the ADB and the World Bank.
The Monetary Board is to soon loosen regulations to allow the corporate sector to borrow more freely from international capital markets and take advantage of the low-interest rates.
There has been increased confidence in Sri Lanka’s financial situation. Lakshman said, “We observed Sri Lankan International Sovereign Bonds appreciate by 20% over all maturities.”
The monetary board is concerned with the rise in import costs led partly by a rise in the cost of petroleum but noted that export performance and worker remittance inflow have been in line with expectations.
Prof Lakshman said, “The Central Bank is maintaining a close dialogue with the government to curb activities of a speculative nature that were seen to disrupt the foreign exchange market behaviour during April.”
Deputy Governor Yvette Fernando dismissed criticism that the banking sector had grown more profitable during the COVID-19 period. She said that banks have become less profitable in relation to their total asset base.
Fernando also noted that the rise in provisioning for bad loans in the interim statements of the banking sector exceeded the requirements as set out by the Central Bank. Fernando noted that moratoriums to all currently benefiting sectors may not be extended again. Discussions with the financial sector have been fruitful and concessions are to be given to borrowers from the transport and leisure sector.
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