Sri Lanka’s inflation well anchored, low interest housing loans for employees
Sri Lanka’s economic growth is expected to bounce back from 1.7 per cent contraction this year with inflation well anchored, Central Bank (CB) Governor Prof.W D Lakshman asserted on Thursday.
He was speaking at the monetary policy review press briefing for the first time via online after COVID-19 hit a CB employee but its operations continue at normal level with staff asked to work from home online.
It has appointed an internal task force overseeing the hygienic conditions and other related functions including disinfection measures.
Sri Lanka’s headline inflation measured by the Colombo Consumer Price Index was 4 per cent in October; same as the previous month while countrywide inflation was 5.5 per cent, down from 6.4 per cent in September.
Referring to EU concerns on Sri Lanka import restrictions, the CB chief claimed that they have overreacted and that any issues affecting their favourable balance of trade could be settled through diplomatic discussions.
He defended the country’s policy decision of restricting non essential imports noting that it was enforced to save much needed foreign reserves and tackle balance of payment issues.
He expressed the belief that the present and future monetary and fiscal assistance will help the economic recovery in the coming months.
After lockdowns in March followed by a strong recovery in the third quarter, it has showed economic resilience, but the coronavirus raised its head again in October, he explained.
He called on all financial institutions including licensed commercial banks (LCBs) to pass on the benefit of the low interest rate regime to their borrowers, in respect of new as well as existing facilities.
“Already the policy measures taken thus far have resulted in low interest rate and a pickup in credit growth,” he said adding that they should maintain current deposit rates specially the 15 per cent interest on deposits given to senior citizens.
In March the rupee was allowed to fall sharply to the US dollar after liquidity infusions and a spike in credit, triggering a downgrade and import controls.
The rupee had been depreciated to Rs. 185 to the US dollar with the CB resorting to dollar buying amidst feeble credit and thereafter credit started to pick up in September and October.
At the Q and A session, Dr. C Amarasekera, CB Director of Economic Research noted that housing loans for public and private sector staff members will be provided by banks at a concessionary rate of 7 per cent interest. The current interest rate varies from 9 to 13 per cent.
Local banks have also been directed to bring down interest rate on credit cards to 18 per cent as the present rates are very high running up to around 28 to 30 per cent with additional charges.
He revealed that there was Rs. 185 billion excess liquidity in the market while the CB has also bought Rs. 566 billion worth of Government securities from primary markets, largely for the Government.
It has disbursed Rs. 179 billion to provide immediate financial support for small and medium-enterprises (SMEs), which have been severely affected by the coronavirus disease,
The Asian Development Bank (ADB) has approved a US$165 million loan to Sri Lanka to extend immediate financial assistance for COVID-19 hit SMEs.
This financing facility amounting to around Rs. 30 billion will be disbursed mainly among underserved SMEs, Deputy Governor K. M. Mahinda Siriwardana said, adding that they would adopt the same repayment plan of 2020 for debt servicing next year as well.