CBSL to maintain its accommodative monetary policy

The Central Bank has decided to maintain its accommodative monetary policy with the Standing Deposit Facility Rate and the Standing Lending Facility Rate, at their current levels of 7% and 8%, respectively.

With the intention of boosting economic growth, The Central Bank reduced policy rates during several instances in the recent past. However, in line with the reduction in policy rates, the government failed to reach its desired target of economic growth.

Leader of the Business Professionals Front Ajith Watturuhewa said the local businessmen had to face several issues during the past four and a half years and their businesses were negatively affected, while, many had to close down. He said many businessmen sold their businesses for a lower price and left the country. He added that many other successful businessmen were included in the CRIB and were imposed various taxes on businesses.

Watturuhewa noted that ultimately the tax burden is passed on to the consumers. He went onto note that when the tax burden increased, the purchasing power of the consumer reduced, resulting in the income generated by our businesses to decline. In other words, he added that they made their businesses less competitive, compared with foreign businesses.

Meanwhile, the former chairman of the Sri Lanka National Construction Association Sunil Liyanaarachchi said at present, many construction companies have been entered into the CRIB. He requested the government to provide them with a loan facility at a concessionary interest rate, equipped with a grace period of 6 months to revive their companies.

Prime Minister and Finance Minister Mahinda Rajapaksa met with top executives of Sri Lankan banks yesterday (November 28), to discuss this matter.

Senior Economic Advisor to the Prime Minister Ajith Nivard Cabraal said;

“We have asked the banks to consider providing a space where customers don’t need to pay their capital for a period of 18 months but continue to pay their interest. The banks will also talk with the Central Bank and come back and talk to us.”

With the change of government in 2015, vehicle taxes, prices of gas, fuel, kerosene oil were reduced, and salaries of state sector employees were increased by Rs. 10,000, resulting in the increase in state expenditure and decline in state revenue.

In order to finance the budget deficit, even though the government proposed the imposition several taxes on casinos, gambling and mansions, a majority of them were not implemented. As a result of the increasing trade deficit, the government faced several issues in meeting its external debt obligations.

Finally, the government was left with no option, than to seek the support of the International Monetary Fund, which came with a package of strict conditions.