Stimulus package to restore financial stability

by Lalin FERNANDOPULLE

The inflation will drop to around five to six per cent by end of the year, said Central Bank (CB) Governor, Ajith Nivard Cabraal at a media briefing held recently at the CB auditorium to launch the Stimulus package for financial and leasing institutions.

He said the drop in inflation will have its ripple benefit on the overall economy with the reduction in interest rates that would help increase investments and revive development activities in the country.

Inflation dipped sharply during the past six months from a staggering 28.1 per cent in June last year which was the highest in the region.Economic growth was severely hampered due to the high inflation resulting in high interest rates leading to low borrowing.

The CB introduced the stimulus package to boost confidence and restore stability of financial and leasing companies facing a crisis following the recent collapse of non-registered financial institutions.

Cabraal said the Rs. 4.2 billion stimulus package will help restore confidence and stability in the financial system in the country and would be a pre-emptive measure to soften the blow of the global economic depression.

"The Central Bank has educated people on registered financial institutions and have advised not to be swayed by unrealistic benefits pledged by various institutions.The new scheme will help raise liquidity levels and investor confidence in the stability of institutions", he said.

The Lankaputhra Development Bank (LDB) will act as an implementing and asset management bank for financial institutions who wish to deal with sale of lands and properties.

Institutions could trade after a proper evaluation of the LDB.

A Special Oversight Committee will be set up to ensure the success of the stimulus package.The CB declined to state the composition of the committee.

"The Central Bank will respond immediately to restore the stability of financial institutions as in the case of Seylan Bank which is now progressing well.Depositors do not have any doubts about the financial status of Seylan Bank which is under the full supervision of the CB", Cabraal said.

Banks have been reluctant to lend and as a result confidence in the financial institutions have deteriorated. To allay fears the Government provided a guarantee to financial companies to continue business without fear.

The reduction of the liquidity ratio from 15% to 10% is another feature of the package which will help the institutions to gain confidence and continue businesses.

The CB will ensure those who avail themselves for the incentives will have to take steps to cease transfer of funds to other companies and also curtail special benefits and high remuneration to employees.

The lending and deposit ratio will be reduced to at least 2% more points to ensure repayments will be made in time.

Cabraal said that the scheme will also help regain properties acquired by leasing companies without a hassle through a convenient procedure.