The Central Bank Governor, Dr. Nandalal Weerasinghe, recently addressed Parliament, updating members on the steps taken to stabilize Sri Lanka’s economy. The meeting, chaired by Speaker Mahinda Yapa Abeywardena, followed the requirements of the new Central Bank Act, which mandates regular updates on financial activities.(economic stabilization)
Key Measures Taken by the Central Bank
Dr. Weerasinghe emphasized that the new Central Bank Act has played a crucial role in stabilizing both the economy and financial systems. He noted that despite global and domestic challenges, the country has made significant progress. A major highlight was the sharp drop in inflation, which fell from a staggering 70% in September 2022 to just 5% recently, thanks to strict monetary policies.
In June 2023, the Central Bank took a more accommodative stance, cutting policy interest rates by 7.25% since then. This shift was possible due to lower inflation, stable external factors, and anchored inflation expectations.(economic stabilization)
Impact on Interest Rates and Currency
The Governor also discussed the reduction in policy interest rates and the stabilization of the Sri Lankan rupee, which he attributed to increased foreign exchange inflows and reserves. As a result, credit to the private sector has gradually expanded since February 2024, signaling positive growth.
Dr. Weerasinghe reassured Parliament that inflation will stay below target in the near future and gradually align with the Central Bank’s goals over the medium term.
Financial System Strengthening and Reforms
The Central Bank has taken several steps to strengthen the financial system, including the completion of an Asset Quality Review of nine major banks. A roadmap for restructuring and recapitalizing these banks has also been developed. Additionally, foreign exchange restrictions have been eased due to better liquidity conditions.(economic stabilization)
Dr. Weerasinghe stressed the importance of the Central Bank’s new reforms, which aim to ensure long-term financial stability. This includes the formation of the Financial System Oversight Committee and the Financial System Crisis Management Committee, both of which work closely with the Finance Ministry.
IMF Program and Parliament’s Feedback
The Governor also highlighted the Central Bank’s role in the successful implementation of the current IMF program. Members of Parliament, while appreciative of the Governor’s efforts, raised concerns about transparency and accountability. They stressed the importance of regular updates on the country’s financial health.(economic stabilization)
In closing, Parliament congratulated Dr. Weerasinghe on being recognized in Global Finance’s Central Banker Report 2024 for his role in stabilizing the economy.
