Fuel price revision and electricity tariff hike among eight measures proposed by CBSL

By Hiran H.Senewiratne

Sri Lanka’s inflation level is very high and has exceeded the 13- year single- digit inflation level this year and is now more than 25 per cent. The Central Bank is quite keen on addressing this issue. Revising fuel prices and increasing electricity tariffs are among eight policy measures the CBSL has proposed to the government to enable the country to face the current economic challenges, Central Bank Governor Ajith Nivard Cabraal said.

” High food inflation of around more than 25 per cent and co-inflation have concerned the Central Bank in a major way and it has now introduced/recommended eight policy measures to the government to further tighten monetary policy to face these economic challenges, the Central Bank Governor told the media at the second monthly monetary policy review meeting for this year yesterday. The event was held at the Central Bank auditorium in Colombo.

Besides revising fuel prices and increasing electricity tariffs, the other policy measures in focus are; discourage supply of non- essential and non- urgent goods, incentivize foreign remittance inward funds, energy conservation, promote renewable energy, impose taxes to increase government revenue, mobilize foreign financing and non- debt inflow, monetizing non- strategic and under- utilized assets and postponing non- essential and non- urgent projects for the time being.

“These eight policy measures are much similar to the IMF recommendations, which sometimes could be worse than our recommendations, Governor Cabraal said.

Cabraal added: “It has been decided to increase both the deposit rate and the lending rate by 100 basis points each after carefully considering the current and expected macroeconomic developments both globally and domestically.

“The Monetary Board of the Central Bank at its meeting held on March 3, 2022, reinforcing its stance adopted in January 2022, has decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) to 6.50 per cent and 7.50 per cent respectively. Statutory Reserve Ratio (SRR), meanwhile, remains unchanged at 4.00 per cent.

“It has been decided to revise upwards the caps imposed on interest rates applicable to credit cards to 20 per cent per annum, on pre-arranged temporary overdrafts to 18 per cent per annum and on pawning facilities to 12 per cent per annum. Directions to effect these regulated interest rates will be issued shortly.

“These measures will dampen the possible build-up of underlying demand pressures in the economy, which would, in turn, help ease pressures in the external sector, thus promoting greater macroeconomic stability.

“The Board is of the view that at the same time concerted efforts will need to be urgently taken by the government to complement the efforts taken by the Central Bank to overcome the present economic challenges.

“The CBSL will continue to closely monitor the emerging macroeconomic and financial market developments, both globally and domestically, and will stand ready to take further measures as appropriate with the aim of achieving stability in the fronts of inflation, the external sector and the financial sector, thereby supporting real economic activity on a sustained basis.”