New Governor stresses need for CBSL independence

The Central Bank of Sri Lanka (CBSL) had to operate independently, newly appointed Governor of the Central Bank, Dr. Nandalal Weerasinghe said yesterday, addressing the media.

Dr. Weerasinghe added that Sri Lanka’s inflation was expected to reach 25% by next month.

The Central Bank earlier increased the Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700 basis points to 13.50 percent and 14.50 percent.

The new Governor added that due to increased interest rates the economic growth would be lower.

“Right now what’s important is stability. We need to apply brakes and that’s the objective. It will get worse before it gets better,” he said.

Dr. Weerasinghe added that there were many positives in increasing interest rates, including addressing balance of payment problems.

“Now, the government will be able to raise money from primary auctions,” he said.

Due to low interest rate maintained during the past few years, large companies benefited greatly, Dr. Weerasinghe said.

“Despite the pandemic issues, big corporates made historic gains. This was due to low taxes and low interest rates. People who were saving and paying taxes were funding corporates. Its time to repay.

Everything has trade-offs,” the new Governor said.

Dr. Weerasinghe said that people who were living on savings had been badly affected in the past two years. He added that he was not serving politicians.

Earlier in the day, the Central Bank of Sri Lanka increased the Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700 basis points to 13.50 per cent and 14.50 per cent.

Issuing a press release the Central Bank said that the rate increase comes into effect from the close of business on 08 April 2022.

The Central Bank said that they noted that inflationary pressures that could further intensify in the period ahead.

These pressures would be driven by the build-up of aggregate demand, domestic supply disruptions, exchange rate depreciation and the elevated prices of commodities globally.

Therefore the bank was of the “view that a substantial policy response is imperative to arrest the buildup of added demand driven inflationary pressures in the economy and preempt the escalation of adverse inflationary expectations, to provide the required impetus to stabilize the exchange rate and also to correct anomalies observed in the market interest rate structure.”