CBSL independence not affected by political crisis: Governor

The Central Bank of Sri Lanka (CBSL) has been functioning independently and unhindered amidst the prevailing political crisis in the country, said CBSL Governor Dr. Indrajit Coomaraswamy.

During the press conference announcing the Seventh Monetary Policy Review for 2018 on Wednesday (14), Coomaraswamy stated that it has been “business as usual”.
“Despite the political uncertainty in the country, the Central Bank has been doing business as usual.”
He further suggested that, contrary to several reports, foreign reserves had not been used to defend the rupee.
According to Coomaraswamy, the gross official reserves rose to $ 7.7 billion at the end of October and have fallen to $ 7.2 billion by 14 November.
“Reserves came down because there was a $ 500 million payment under the Asian Clearing Union”, he said.
Coomaraswamy emphasised that the availability of sufficient reserves is a question which should be addressed to meet Sri Lanka’s external obligations.
“The question we need to ask ourselves is, does the country have sufficient reserves to make sure that the currency is not subject to disorderly adjustment and to maintain a healthy level of gross official reserves. Do we have the capacity to do that?” Coomaraswamy said.
On a further note, Coomaraswamy said the relief measures announced by former Prime Minister Mahinda Rajapaksa recently were introduced within a framework.
The Governor said: “When the new relief package was introduced, it was presented in terms of the deficit and the primary surplus. That was the framework within which we presented.”
He suggested that the relief package would not have a serious impact on fiscal consolidation.
“The whole relief package taken together comes to a point 0.3% of GDP”, he said.
However, he added that the tax revisions, including changes to the withholding tax, that were announced after Rajapaksa assumed duties as Finance Minister, require parliamentary approval, as relevant laws have to be amended to proceed with the changes.
Coomaraswamy also said that he recently had a meeting with Rajapaksa with regard to the economic challenges and positive, negative impacts of them on the country, where they also shared “ideas”.
Responding to a question with regard to the outflows from the international markets, the Governor said that outflows began before the crisis, and in any country, political uncertainty raises pressure on the country and intensifies outflows.
The Governor was optimistic that Sri Lanka could end the year with $ 7.8 billion reserves.
With a number of capital inflows coming in, the CBSL expects to settle a $ 1 billion bond which will mature by January, 2019 and a $ 500 million loan which will be due in April.
Explaining the resettlement plan, the Governor said that from a recent mission to the Middle East, accompanied by the chairmen and chief executives of five structurally important banks, an inflow is expected to come in.
“Following the Middle East mission, and the network of other contacts, the state banks, Bank of Ceylon (BOC), People’s Bank, and National Savings Bank (NSB) will collectively be able to bring between $ 750 million to $ 1 billion”.
“In addition to this, there will be $ 645 million leftover from the Hambantota Port which will be received for the servicing at the end of this year,” he said.
Governor also noted that a loan from the China Development Bank (CDB) had the capacity to be upscaled to $ 1.5 billion and it will be received by February to settle a $ 1 billion dollar denominated international sovereign bond, which is due in April next year.
These inflows will enable CBSL to meet its debt servicing obligations early next year.
According to Coomaraswamy, a rise in reserves is expected through swap arrangements with the central banks of Oman and Qatar.
During the parliamentary session on 26 October, hours before the crisis erupted, a resolution under the active liability management act had been passed, through which Rs. 310 billion can be raised both internally and externally.
Coomaraswamy said: “Swap arrangement with the People’s Bank of China which expired in September is expected to be renewed under this resolution.”
He also highlighted the flexibility in raising funds through Middle Eastern, Chinese, and Japanese markets, where Sri Lanka’s diminished investor confidence could be strengthened.
Meanwhile, responding to a question on the fuel price formula, the Governor said the formula had not been abolished but been approached in a different way, where the prices would not be adjusted every two months based on the changes in international oil prices.