CB’s prudent policies pay dividends - Governor

The impact of the global financial crisis on the domestic financial system is minimal due to the prudent policies adopted by the Central Bank of Sri Lanka, said Governor Central Bank (CB) Ajith Nivard Cabraal.

He said that the Central Bank has been vigilant in maintaining stable interest and exchange rates to protect the domestic economy and strengthen it. Our exchange rate has been stable for over one year and the CB has opened Treasury Bill and Bond markets to foreign investors with carefully placed limits while creating buffets to meet the threat of a sudden capital flight.

Cabraal said that the CB has been highly concerned about the adverse implications that would arise due to any indisciplined lending by banks.

Therefore, the CB had directed all banks to make a general provision of 1% on performing loans and advances in November 2006, and increased the risk weight applicable for housing loans from 50% to 55% during the same time.

In addition, the CB placed a limit on commercial banks’ borrowings from abroad to 15% of their capital, formalised and strengthened the bank’s supervision activities and educated the banks on the management of risks, internationally, the CB invested its external reserves with highly rated international banks, absorbed an additional US $ 600 mln from the foreign exchange market and dealt with inflation in a decisive manner which resulted in it recording a gradual decline.

He said that the CB is regularly examining the country’s financial relations with all their counterparts and financial institutions and are constantly acting to avoid any liquidity shortfall and are conducting discussions with commercial banks.

Cabraal said that notwithstanding all these efforts - if this global crisis prevails for a longer period and many countries suffer from recession Sri Lanka’s exports too could be affected although in a limited way because of the nature of our exports.

Therefore, exporters have to be vigilant of this situation and take measures to handle such an eventuality and continue to improve their productivity.

He assured that the government and the CB will take all steps to meet the rapidly unfolding challenges and added that they are confident that they can face these challenges.

SG