CB to develop vibrant bond market in Lanka

Sri Lanka has removed time restrictions on forward foreign exchange transactions with effect from yesterday, Central Bank Governor Ajith Nivard Cabraal said unveiling the Road Map for Monetary and Financial Sector Policies for 2013 and Beyond.

A new investment account for non- resident amalgamating several types of investment accounts currently maintained at LCBs has been introduced with effect from yesterday while new inward remittances distribution account which can be used as a clearing account to disburse earnings of Sri Lankans providing services abroad, has been introduced.

Key projections for 2013

* Real GDP to grow by 7.5 percent

* Inflation to stabilise at mid-single digit levels

* Trade deficit to improve from 15.1 percent of GDP to 14.4 percent of GDP

* Current account deficit to improve from 5.5 per cent of GDP to 4.7 percent of GDP

* Reserve adequacy in months of imports to remain around 4 months

* The overall budget deficit to reduce to 5.8 percent of GDP

* Continuous improvement in productivity levels

Central Bank Governor Ajith Nivard Cabraal addressing the Road Map for Monetary and Financial Sector Policies for 2013 and Beyond. Picture by-Mahinda Vitanachchi

The Central Bank in addition has allowed expiring credit ceiling imposed on banks at the end of 2012 to provide some stimulus to the economy. Repurchase rate and Reverse repurchase rate were also reduced by 25 basis points in December 2012 to attain the expected stabilization in the economy.

According to Central Bank Governor, the multi-pronged policy package helped the economy get back on track swiftly, and to record the shortest tightening cycle since 2001.

“Sri Lanka is expected to have balance of payment surplus of $ 100 million and overall economic growth in 2012 would be about 6.5 percent. With the expected further diversification in the economy in the years ahead, the key sources of foreign exchange earnings would shift towards more service based exports.

The Central Bank will make efforts to promote the competitiveness of both exports of merchandise goods as well as services while indirectly facilitating other foreign exchange flows, which would have an impact on the exchange rate.

Measures will also be taken to bridge the high savings-investment gap through medium to long term measures and long-term domestic savings will be encouraged through positive real interest rates and through the promotion of pension funds and life insurance,” Cabraal said.

Sri Lanka is well on track to achieving its target of doubling the per capita income to US $ 4,000 by 2016.

In the meantime, to reach a US $ 100 billion economy by 2016, banks and non-bank financial institutions (NBFIs) will have to play a critical role. In that regard, the Central Bank will review and amend the regulatory framework to facilitate the business models of banks and NBFIs and encourage the adoption of policies for diversification of business and income, through fee-based services, strengthen the regulatory regime, while encouraging diversification of sources of funding and business operations mainly through foreign sources.

The Central Bank will endeavour to develop a vibrant and liquid bond market in Sri Lanka, facilitating the development of the Government securities market while encouraging the development of the equity and corporate bond markets.