CB to discuss with DCS before data release | Sunday Observer
Following reservations on 1Q performance:

CB to discuss with DCS before data release

23 August, 2020
Central Bank Governor W.D. Lakshman addresses the media flanked by senior officials of the bank. Pic: Chinthaka Kumarasinghe
Central Bank Governor W.D. Lakshman addresses the media flanked by senior officials of the bank. Pic: Chinthaka Kumarasinghe

The Central Bank will hold discussions and continuous dialogue with the Department of Census and Statistics before data on the Gross Domestic Product (GDP) is released for each quarter, said Central Bank Governor W.D. Lakshman in response to a query on the low GDP growth recorded in the first quarter this year when barely 10 days of the global pandemic had affected the economy.

“Henceforth the Central Bank will engage in discussions with the statistical body before the release of the quarterly results of the economy,” the Governor said, adding that it is also the task of the media to probe and debate on the data.

The release of the first quarter results of the performance of the economy was delayed due to the situation in the country. It was speculated that the delay was due to negative growth recorded in the first quarter.The economy contracted by 1.6 percent in the first quarter this year contrary to the expectations of the Central Bank. As per the indicators, the adverse impact of the pandemic on economic activity during the second quarter is likely to be substantial.“It is too early to predict the overall GDP growth for the year as all depends on the third and fourth quarter performance which is likely to improve with imports declining, an up-tick in exports and an improvement in foreign remittances,” Central Bank Senior Deputy Governor Dr. Nandalal Weerasinghe said.

However, the regulator noted that a faster rebound of economic activity could be expected, especially in the fourth quarter of the year supported by improved political stability, the resultant improvement in business confidence, and the lagged impact of monetary and fiscal stimulus.

“The expected rebound in the fourth quarter is essential for the country to record a positive growth rate during this year,” Dr. Weerasinghe said. Economic growth in most economies including those of advanced countries has contracted sharply recording negative growth so far this year while forecast for the rest of the year is bleak.

Global think tanks have warned things would get worse before it could get better for all economies. The regulator saidated that it has a comprehensive program to help ailing financial institutions which have been a burden to the economy.

“Our plan is to consolidate and have mergers between stronger and weak entities to ensure financial stability in the sector,” a Deputy Governor of the Central Bank said, adding that a new Act replacing the old will be in force to regulate the microcredit sector in the country. The Central Bank maintained the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) at their current levels of 4.50 percent and 5.50 percent, having recognised the need to continue the accommodative monetary policy stance, particularly as market lending rates are yet to reflect the full pass through of policy easing measures implemented thus far.

The trade deficit has narrowed during the first half of 2020, as the contraction of imports outpaced the contraction of exports, supported by import restrictions and subdued global petroleum prices. Some improvement in workers’ remittances was observed in June, in contrast to the declining trend observed since March 2020. Depreciation of the Sri Lankan rupee against the US dollar has been limited to 1.3 per cent thus far during the year, following a significant depreciation recorded during March-April 2020.With the Central Bank buttressing its reserves through foreign currency purchases from the market and foreign currency swaps with the Reserve Bank of India and licensed banks, gross official reserves were estimated at US dollars 7.1 billion by end July 2020, providing an import cover of 4.7 months. No demand driven inflationary pressure is expected during the forecast horizon

Growth of credit extended to the private sector by commercial banks decelerated in June 2020, year-on-year, while the outstanding volume of credit contracted during June 2020 for the second consecutive month, in spite of the large surplus liquidity in the market. However, a gradual recovery in credit extended to the private sector is expected in the period ahead, driven by increased economic activity, improving business sentiment with enhanced political stability, declining market lending rates and rising credit disbursement on account of concessional credit schemes for businesses affected by the pandemic. Considering bank lending rates of certain financial products which continue to remain high, the Board decided to revise downward the caps on interest rates on credit cards to 18 per cent per annum, on pre-arranged temporary overdrafts to 16 per cent per annum and on pawning facilities to 10 per cent per annum.

A spokesman for the Board said that penal interest rates need to be capped at 2 percentage points over the regular interest rates charged on the relevant credit facility. Directions to effect these regulated interest rates will be issued shortly.