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By Hiran H. Senewiratne

Sri Lanka’s level of inflation is very high and has surpassed the 13-year single digit inflation level this year and is now above 25%. The Central Bank is keen to address this issue. Revising fuel prices and increasing electricity tariffs are among the eight policy measures that CBSL has proposed to the government to enable the country to face the current economic challenges, said the Governor of the Central Bank, Ajith Nivard Cabraal.

“High food inflation of around over 25% and co-inflation has been of major concern to the Central Bank and it has now introduced/recommended eight policy measures to the government to further tighten monetary policy to deal with these economic challenges, the central bank said. The Bank Governor told the media at the second monthly monetary policy review meeting for this year yesterday. The event took place at the Central Bank Auditorium in Colombo.

Apart from revising fuel prices and increasing electricity tariffs, the other policy measures targeted are; discourage sourcing of non-essential and non-emergency goods, encourage foreign remittances to funds, energy conservation, promote renewable energy, impose taxes to increase government revenue, mobilize foreign financing and inflows non-debt related, monetize non-strategic and underutilized assets and postpone non-essential and non-emergency projects for the time being.

“These eight policy measures are very similar to IMF recommendations, which could sometimes be worse than our recommendations,” Governor Cabraal said.

Cabraal added: “It has been decided to increase both the deposit rate and the lending rate by 100 basis points each after carefully considering current and expected macroeconomic developments, both globally and domestically.

“The Monetary Board of the Central Bank, at its meeting of March 3, 2022, reinforcing its position adopted in January 2022, decided to increase the rate of the permanent deposit facility (SDFR) and the rate of the permanent deposit facility of loan (SLFR) at 6.50 percent. cent and 7.50 percent respectively. The statutory reserve ratio (SRR), meanwhile, remains unchanged at 4.00%.

“It has been decided to revise upwards the caps on credit card interest rates to 20% per annum, on prearranged temporary overdrafts to 18% per annum and on pledge facilities to 12 % per year. Instructions for applying these regulated interest rates will be published shortly.

“These measures will alleviate the possible build-up of underlying demand pressures in the economy, which, in turn, will help ease pressures in the external sector, thereby supporting greater macroeconomic stability.

“The Board is of the view that, at the same time, concerted efforts will need to be made urgently by the government to complement the efforts of the Central Bank to overcome the current economic challenges.

“CBSL will continue to closely monitor emerging macroeconomic and financial developments, both globally and domestically, and will stand ready to take further action, as appropriate, with the aim of ensuring stability on the frontlines of the crisis. inflation, the external sector and the financial sector, thus sustainably supporting real economic activity.

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