December 09, 2019
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    Govt’s Fiscal Package can be accommodated - CB Governor Featured

    November 30, 2019

    Central Bank Governor Dr. Indrajit Coomaraswamy said that the government’s fiscal package can be accommodated given the current level of monetary aggregates. He was speaking at the press briefing following the monetary policy announcement on November 29 at the Central Bank.Dr. Coomaraswamy said that credit growth and rates were not where the Central Bank expected them to be. Monetary Policy continued its accomodative stance as rates were left unchanged.

    The government is to shortly release a document on the stimulus project detailing how economic stability will be maintained.He said “There is capacity for some expansionary policies in terms of aggregate demand in the system. The fiscal stimulus could be accommodated without overheating the economy provided that it is structured within a clear stable framework.”
    He added “The whole rationale of this fiscal package is to put aggregate demand into the system to revive the economy.We have had persistently low growth for some time. Through these reductions in taxes, you will put back additional aggregate demand in the system. There seems to be space for that if you look at monetary aggregates. It is extremely important that we are very vigilant and this is kept within a framework that does not undermine fiscal stability and debt sustainability.”
    He said “The exchange rate has also been relatively stable. It has appreciated by a little over 1 percent and that may be attributed to the significant improvement in the trade deficit. Our current account deficit has declined from 3.2 percent of GDP last year to 2.6 percent. As far as international capital markets are concerned the pressure in terms of capital outflows has been less.”He added “We expect the Prime Rate to come down 70 bps by end of December and the Average Weighted Lending Rate by 120 bps by March. All this has still to take place.”
    He said “We have to be cautious of the fiscal outlook. Even before the fiscal package that came out a couple of days ago, there were several measures including the salary increase coming out in January that calls for caution in terms of loosening monetary policy.”He added “Sri Lanka has never missed a single payment and we don’t intend to start now. The government will shortly be making a statement on how this fiscal package will be accommodated without undermining stability. Without leading to a situation where there is overheating of the economy and there are inflationary pressures.”
    He said “There has been an uptick of inflation as expected. We expect inflation to hit the upper bound of 6 percent in December. Our inflation expectations are well anchored and the outlook is stable.” Inflation is expected to return to the middle band next year.He added “Private sector growth has been well below what we expected. There was in absolute terms an expectation that the private sector would grow by Rs.750 billion, it is more like Rs 250 billion this year.”This was the Governor’s last monetary policy announcement in his current tenure. He said that it used to be the tradition to have an internal appointee to the Central Bank Governor’s post but that the decision lay with the Finance Minister and President.

    Last modified on Saturday, 30 November 2019 10:46

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