IMF welcomes increase in interest rates

by Gamini WARUSHAMANA

The IMF welcomed the increase of policy interest rates and other measures recorded by the Central Bank to contain credit growth.Commenting on $ 800 million last tranch of the $ 2.6 billion IMF standby agreement facility, Dr.Aitken said that after the conclusion of this mission, the money will be available and whether we take it or not is upto the government of Sri Lanka. Our rates are between 1-3 percent. While urging more flexibility, the IMF welcomes monetory and exchange rate policy adjustments , the IMF stressed that Sri Lanka’s monetory, fiscal and exchange rate policies should be flexible and Sri Lanka needs to take advantage of all policy instruments to re-balance the external sector of the economy.

The Sri Lankan economy is growing and inflation is under control. However, one thing we see widening is the trade deficit. We hope to see a slowdown in credit growth.

We want to see the government’s strategy on dressing up the situation, after concluding the IMF staff mission Dr.Brian Aitken told the media in Colombo on Friday. He said that a flexible exchange rate is important and the 3 percent depreciation of the rupee in the Budget was welcome and more flexibility in the exchange rate policy is vital at this moment.

We want to go further and our position is the same.

The Government singled that it is going to curtail credit growth, he said.

Dr.Aitken said that the widening trade deficit is a byproduct of strong growth and boosts the confidence in the economy.

As a result, consumer spending and imports surge. Responding to queries of journalists, he said that Sri Lanka has been successful in raising funds from international capital markets and all its Euro bonds were oversubscribed.

However, today the situation is more challenging due to the debt crisis in the Euro zone and other economies.

He said that Sri Lanka’s foreign reserve level has declined and today it is below the reserves level we agreed on our technical Memorandum of Understanding. Today, Sri Lanka has more space to adjust and in 2009 due to the global crisis and capital outflow there was limited space.

Our discussions focused on the government’s strategy to address the external imbalance that emerged in the second half of 2011 and ensure that the economy’s recovery continued without disruption.

There was broad agreement that a decisive policy response was needed to put the economy on a sound macroeconomic footing, especially given the current uncertain global environment.

In this context, we are encouraged by the recent adjustments in the monetory and the exchange rate policy stance, as well as the strong commitment of the government to further reduce the Budget deficit to 6.2 percent of GDP in 2012 and address the losses of key state owned enterprises, he said.