Sri Lanka reserve ratio hike not ruled out: CB Governor
Feb 02, 2010 (LBO) – Sri Lanka is open to increasing the ratio of cash banks must deposit with the Central Bank as a policy to contain inflation,Governor Nivard Cabraal said, as consumer inflation accelerated to an eleventh month high in January.
“We will not rule it (a reserve ratio hike) out,” Cabraal said. “But the rise in inflation is not unexpected. We expected inflation to rise until April and then moderate.”
Consumer prices in the capital Colombo rose to 6.5 percent in January 2010 up from 4.8 percent in December with prices jumping 1.4 percent in January alone.
The reserve ratio is the portion of deposits that a commercial bank has to place within the central bank. Sri Lanka’s banks have had excess reserves,
above the official requirement, of about 20 to 30 billion rupees since mid-2009.
A reserve ratio hike could draw out some of the liquidity permanently but also raise the operating cost of banks. But by historical standards in the country, the current ratios are low.
Following Reserve Bank of India’s footsteps, the Central Bank brought down Sri Lanka’s reserve ratio to 7.0 percent from 10.0 percent in a series of cuts from October 2008 to February 2009 as the banking system ran out of liquidity in a balance of payments crisis.
Last Friday India raised its reserve ratio by 75 basis points to 5.75 percent amid surging inflation.
Sri Lanka and India are among a few countries in the world that still use reserve ratios as monetary policy tools. Most counties that have floating exchange rates rely on policy rates to control inflation.
Sri Lanka’s market risk free rates have already started to move up slightly amid deficit spending by the government and a recovery in private sector credit.
The 3-month Treasury bill rate has moved up to 7.95 percent in the last week of January from 7.25 percent in the third week of November 2009.
The 12-month yield has moved from 9.17 percent to 9.46 percent in the same period.
(LBO, 02-Feb 2010)
Business leaders hail political stability
Business leaders and relevant chambers claim that the much-required stable environment that the corporate sector sees as necessary and conducivefor enterprises now prevails in the country and attributed this to the results of the recently-concluded Presidential election.
President of Sri Lanka Chamber of Small Industries, Aloy Jayawardane said that the country has achieved the stability it sorely required. Managing Director of Hettigoda Industries Pvt Ltd., and Deputy President of National Chamber of Commerce of Sri Lanka Asoka Hettigoda, said that to transform Sri Lanka from a Third World country into a First World nation, a new team is needed but that the primary condition expected was peace.
Chief of Ceylon Chamber of Commerce Chandra Jayaratne meanwhile said that Sri Lanka should carefully evaluate emerging risks. He said it all depends on the effective management of the economy.
President of the National Chamber of Commerce of Sri Lanka, Lal de Alwis, sharing his Chamber’s perspectives, believes that President Mahinda Rajapaksa’s victory is a clear mandate given by the public who have shown their faith and confidence about his economic policies.
He said this victory also confirms the right path the President took in supporting local industries to strengthen its position locally while assisting them to become international players. He pledged assistance to make this country’s economy a First World economy.
USAID provides US $ 3million to facilitate resettlement
The U.S. Agency for International Development has announced that 3 million US Dollars in new funding to support the operations of the International Organization of Migration to facilitate the return and resettlement of some 77,000 Internally Displaced Persons in the North.
The assistance will include transport to allow IDPs to return to their home districts; emergency shelter kits to build temporary housing and transitional shelters; water and sanitation facilities; and the provision of emergency health services across the region.
Announcing the funding, U.S. Ambassador Patricia Butenis said their focus is on vulnerable segments of the population such as female-headed households, the elderly and the disabled.
Sri Lanka’s Head of Mission of the International Organisation of Migration Mohammed Abdi Ker said thousands of IDP families are returning to their native areas with very little basic facilities such as shelter, water, sanitation, and basic health services and they plan to meet their most immediate needs.