Governor Dr. Nandalal Weerasinghe yesterday claimed that measures taken by the new administration at the Central Bank indeed helped to minimise the damage to the economy from the twin crisis in the Balance of Payments and external debt.
Speaking at the Ceylon Chamber of Commerce launch of its economic outlook, Dr. Weerasinghe said tightening of the monetary policy and other measures by the Central Bank ensured that contraction of the economy in 2022 being limited to single digit and not double digit as well as avoid hyperinflation of over 100% inflation.
“CBSL didn’t contract the economy but rather our measures even though difficult helped to minimise the damage to growth and inflation,” Dr. Weerasinghe said.
His remarks were an apparent response to criticism against the current regime at CBSL that its policies indeed led to shrinking of the economy whilst the high interest rate regime has come under constant flack.
However, Dr. Weerasinghe said that an estimated 7% contraction of the economy in 2022 is much lower than what others including multilateral agencies had forecast. He also said some estimated inflation by end 2022 will be 70% whereas it was 57%.
“The worst is over,” he said, adding that inflation will move to single digit levels by year’s end.
The CBSL Chief also said interest rates will decline as well.
It was pointed out that IMF Executive Board approval for the $ 2.9 billion Extended Fund Facility program and related developments will help ease the crisis in the Balance of Payments after which interest rates will come down. “No point bringing down the interest rate without securing the IMF program,” he pointed out.
The CBSL Chief also said that unlocking the IMF program will minimise the premium currently being enjoyed in the Government securities market.
Dr. Weerasinghe expressed confidence in an early finalisation of the IMF support program with the receipt of financial assurances from key bilateral creditors China, India, and the Paris Club. This will also help finalise negotiations with private creditors. “All these developments are aimed at restoring Sri Lanka’s debt sustainability,” the CBSL Chief said.