Roadmap 2020 : ‘Low interest rates will help key economic sectors’ | Sunday Observer

Roadmap 2020 : ‘Low interest rates will help key economic sectors’

Moving towards a production economy to accelerate economic growth, the Central Bank of Sri Lanka (CBSL) envisages proactive policy measures to ensure stable inflation that will lead to fiscal and macroeconomic stability.

“With reforms introduced to State owned Enterprises (SoEs), measures for better service delivery to improve operational efficiency of these institutions are expected to contribute towards the growth. The reserves are expected to grow with the revival of economic activities,” Governor CBSL, Prof. W.D. Lakshman said.

“Working towards achieving equitable and inclusive growth to elevate the country to an upper middle income country, the Road Map 2020 is aligned with the government’s policy framework to contribute to the upward movement of the economy with a forward looking evidence-based view,” he said, presenting the Road Map 2020 which outlines the financial and monetary sector policies for this year and beyond, in Colombo last week.

The CBSL plans to form a task force to introduce cost-reflective benchmark interest rates for the banking sector, which reflects the actual cost of funds, to overcome the deficiencies in the current benchmark interest rates. “The measures to maintain low interest rate environment will augur well for the two key sectors of the economy, namely agriculture and industries.

As the present government is seriously looking at developing these two sectors, by promoting SMEs and other industries, it will be necessary to reduce the cost of production, Chairman, Bank of Ceylon Sujeewa Rajapakse said.

“The products should be competitive and for this, it is important to keep the cost of production low. Having lower cost of production will give the sector a competitive edge which could be a huge plus factor in the global market. However, the low interest rate environment will have an adverse effect on pensioners. For this, the financial sector needs to introduce new products with more viable income to supplement the loss. The low interest rates will reduce the cost of living which will have a positive impact on people,” he said.

Professor in Economics, University of Colombo, Sri Lanka Prof. Sirimal Abeyratne said, The Central Bank’s Road Map 2020 reiterated the flexible inflation targeting as its monetary policy approach to price stability.

Thus the CBSL intends to maintain price stability with inflation in the range of 4-6 per cent, with the use of the monetary policy instruments in hand. The CBSL will focus on using the interest rates and the liquidity level to manage credit growth and aggregate demand.

The CBSL will ensure flexibility of the exchange rate and will allow market forces determine its value.

“The Bank will not have a direct involvement in controlling the exchange rate, which is left mainly to the market. This means that, unless and until, the country is generating adequate foreign exchange through export growth, we should not expect its sustainable stabilisation this year,” he said.

Prof. Abeyratne is also the Chairman, Monetary Policy Consultative Committee, CBSL and Chairman, Institute of Policy Studies (IPS), Colombo.