CB Governor: Lanka now in a position to pay for essentials
Posted on August 19th, 2022

Courtesy The Island

‘Inflation will not be as high as initially expected’

Inflation will not be as high as initially expected and there are signs of economy stabilising, Central Bank Governor Dr. Nandalal Weerasinghe says.Dr. Weerasinghe said that during the past few months a number of initiatives had been made to improve the economy and they were yielding the desired results.

During the last review, we thought the inflation would reach 70%. However, now we believe that the inflation will not be that high even with the electricity tariff hike,” he said.

Dr. Weerasinghe said that the severity of the shortage of foreign currency had lessened. The country was now in a position to import fuel, gas and medicines.

This has become possible because of the decisions we took. Imports have decreased. Export revenue has somewhat increased. Even without short-term loans we have been able to meet our basic needs. This is a positive development,” Dr. Weerasinghe said.The CB Governor said that inflation driven by demand had lessened because the expansion of loans had been curtailed.The supply side inflation too would drop with price and foreign exchange stabilisation.

Still the inflation is about 60% and that’s why we need to maintain the current high policy rates. Once the government adjusts the fiscal policy, tax, and presents the new budget, things will improve. I think you can also see this. We are seeing positives,” he said.

Dr. Weerasinghe also urged exporters to bring back the foreign exchange earnings, and that the Central Bank had taken steps to ensure that exporters abided by the CB regulations.

The irregularities due to open accounts, hawala and undial are being controlled and the black market premium is dropping. The foreign exchange liquidity in the banking sector has increased,” he said.

The Governor added that negotiations with the International Monetary Fund (IMF) had made good progress. An IMF delegation was expected to visit Sri Lanka by the end of August to reach a staff-level agreement.After Sri Lanka reached a staff-level agreement with the IMF, it had to start engaging with its creditors on debt restructuring.

Once we reach an agreement with the IMF the situation will improve further,” he added. (RK)

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