Central Bank Governor briefs Parliament on steps taken to stabilise economy

 Central Bank Governor, Dr. Nandalal Weerasinghe

• Reassures MPs that measures implemented under new Central Bank Act played a key role in stabilising economy and financial landscape 

In a special session held in Parliament on Tuesday, the Central Bank Governor, Dr. Nandalal Weerasinghe, along with members of the Central Bank’s Governing Board and Monetary Policy Board, briefed Members of Parliament on the current duties and actions taken by the Central Bank of Sri Lanka (CBSL) to stabilise the economy.

The meeting, chaired by Speaker Mahinda Yapa Abeywardena, was held in compliance with Section 80 (2) (a) of the CBSL Act No. 16 of 2023, which mandated periodic updates to Parliament on the Central Bank’s activities.

During the session, the Governor detailed the CBSL’s efforts to maintain the stability of the entire financial system and reassured the Members of Parliament that the measures implemented under the new Central Bank Act have played a key role in stabilising the economy and the financial landscape of the country.

Dr. Weerasinghe highlighted the progress made in stabilising country’s economy amid a challenging global and domestic environment. 

He detailed that inflation recorded a rapid disinflation from the historic high levels with aggressive monetary policy measures, citing that the inflation was reduced from 70% in September 2022 to 5% at present. He noted it as a significant achievement given the worst economic crisis the country faced.

Thereafter he said that the CBSL adopted an accommodative monetary policy stance in June 2023 and reduced policy interest rates by 7.25% points since then and noted that the low inflation environment, low inflationary pressures, anchored inflation expectations, and stable external sector allowed maintaining an accommodative monetary policy since June 2023.

The Governor also noted a decrease in policy interest rates and the stabilisation of the rupee, which he attributed to enhanced foreign exchange inflows and reserves.

With the accommodative monetary policy stance, he said market interest rates declined substantially, with credit to the private sector showing a gradual expansion, on year-on-year basis, since February 2024.

Dr. Weerasinghe, in his presentation also said that the headline inflation is expected to stay notably below the target in the near term and is expected to gradually align with target level over the medium term. As per the CBSL projections, quarterly average headline inflation is likely to remain below the inflation target by more than the margin of 2% points stipulated in the Monetary Policy Framework Agreement (MPFA), assuring that a sustained acceleration of core inflation is not anticipated.

He also said with the easing of foreign exchange liquidity conditions, several foreign exchange restrictions were removed.

In addition, he pointed to the Central Bank’s several initiatives to strengthen the financial system stability and support crisis-affected businesses and individuals. 

Dr. Weerasinghe underscored the importance of the new Central Bank Act, which introduced several reforms aimed at strengthening the country’s financial system. 

It was noted that the CBSL completed the Asset Quality Review of nine large banks and developed a Roadmap for the restructuring and recapitalisation of such banks and to support compliance with the roadmap, the bank recapitalisation strategy was developed. 

Further, he said macro-prudential surveillance was strengthened, where CBSL established the Financial System Oversight Committee to contribute to secure the stability of the financial system in line with the macro-prudential policies, established the Financial System Crisis Management Committee and Technical Committee on Financial System Crisis Management to facilitate a coordinated approach between the Central Bank and the Finance Ministry in financial system crisis management and Published the Macro-prudential Policy Framework in March 2024.

Dr. Weerasinghe said the Central Bank also plays a pivotal role for the successful implementation of the current IMF program.

MPS also raised several concerns regarding the current financial situation and sought further clarification on the Central Bank’s strategies. They stressed the importance of transparency and accountability in the Central Bank’s operations and the need for regular updates to Parliament on the financial health of the economy.

The members of Parliament also congratulated the Governor of the Central Bank of Sri Lanka for receiving an honorary acknowledgement according to Global Finance’s Central Banker Report 2024.