No rate volatility next year as govt. better prepared to tackle debt: CB
Market interest rates are unlikely to experience volatility through public debt-servicing requirements, as the Central Bank the government are better prepared to manage domestic and foreign debt next year with the planned implementation of the Liability Management Act and the buffers being built up by the state from borrowings and income from asset sales.
“The liability management exercise, the fundamental reason is to smoothen out the volatility in interest rates, in terms of rather than going to the market at the times of maturities and trying to raise that money, large amounts in a day or two,” Central Bank Deputy Governor Dr. Nandalal Weerasinghe said.
He was responding to a question on whether interest rates will increase next year due to government debt service requirements, during a press conference, last week.
He said that in the past, the government had approved debt raising at short notice, which had forced the Central Bank to raise the funds at the then prevailing market rates, thereby putting upward pressure on market interest rates.
This past practice, which created volatile market rates, had made the Central Bank’s monetary policy stance weaker, according to Dr. Weerasinghe.
There was some speculation in the market that interest rates may record an upward tick next year. Central Bank Governor Dr. Indrajit Coomaraswamy said that there would be a peak in domestic debt maturities in 2018.
“We want to go to the market very early next year, so that we are able, if the maturity comes into the system that also will take the pressure off both the interest rates as well as expenses,” he said.