World Bank downgrading of Sri Lanka status was ‘figurative’:CB Governor
The World Bank’s recent action of downgrading the status of Sri Lanka to lower-middle income group from upper- middle income grade was mainly based on the country’s per capita income and such classifications doesn’t indicate the actual situation of countries, Central Bank (CB) Governor Prof. W.D. Lakshman has emphasised.
Addressing the CB’s monthly monetary policy review media briefing in Colombo on Thursday, he noted that such categorisation of figurative nature could be reversed by accomplishing sustainable growth focusing on economic reforms.
Prof. Lakshman noted that while an increase in inflation could be anticipated in the upcoming months, inflation expectations remained well-anchored.
He dispelled the fear of the overheating of the economy as there was adequate liquidity in the system. He further stated that they are pressurising banks to pass on the rate cuts to borrowers without any further delay.
“Currently, there is a committee appointed comprising Central Bank officials to find out reasons for preventing them from extending loans as determined by the Central Bank and why they're not responding adequately to interest rate cuts and why they're not giving loans as permitted by the improved liquidity conditions,’ he revealed.
Explaining the reasons behind the recent ‘bashing’ of CB officials by President Gotabaya Rajapaksa, the Governor noted that before the meeting with the President, measures have been taken in accordance with the legal procedure of the Central Bank to provide a refinancing facility and introduce a rate adjustment.
But the meeting with the President was held during the process of arranging this facility and there was no request to provide details of the CB’s action taken at that time to mitigate the economic impact of COVID-19, he disclosed.
However Prof. Lakshman noted a new system is now in place to keep the President informed of CB activities by regularly meeting with the President and Prime Minister Mahinda Rajapaksa to prevent the recurrence of such incidents.
CB Senior Deputy Governor Dr. Nandalal Weerasinghe noted that the prime lending rate has come down almost by the same margin of 150 basis points ( BPS) while Treasury bill rates have also come down more than what they have reduced.
But, he said, normal SME lending rates have not come down and also new lending rates to other border categories adding that the credits given to those sectors were very low compared to what was given earlier.
The banks are saying that their committed deposit rates at higher rates or the cost of funds will take some time. So, that adjustment will take time for a larger category of borrowers, he said. On Thursday, the CB further reduced the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate ( SLFR) by 100 basis points each, to 4.50 per cent and 5.50 per cent, respectively.
Prof. Lakshman noted that while an increase in inflation could be anticipated in the upcoming months, inflation expectations remained well-anchored.