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CBSL to keep interest rates at single digits

05 Jan 2021

  • Launches its roadmap for 2021

  • Transaction reporting system by end this year

  • Positive income from PayPal expected 

  The Central Bank of Sri Lanka (CBSL) is planning to establish a permanent single-digit interest rate structure in the economy while remaining focused on maintaining market interest rates at single-digit levels, this year.  Announcing the CBSL’s “Road Map 2021: Monetary and Financial Sector Policies for 2021 and Beyond”, CBSL Governor Prof. W.D. Lakshman stated yesterday (4) that the business community will benefit from low-cost borrowing facilities corresponding to a low interest rate regime.  “This is imperative to promote investment and entrepreneurship in the country, the needed foundation for sustained high economic growth. The availability of low-cost funding on a sustainable basis would encourage businesses, including start-ups, to venture into new industries and sectors that have high growth potential,” the Governor added.  For the sustainability of the low interest rate structure, the CBSL believes that it is essential that foreign exchange leakages for non-essential imports and outward investment are minimised, thereby allowing the domestic production economy to reap the intended benefits from easy monetary conditions.  Monetary policy will also be reoriented towards supporting the identified sectors of the economy, and lending targets to priority sectors and winning industries will be introduced during the year, following consultation with relevant stakeholders, according to the CBSL. The CBSL expects credit to the private sector to expand by around 14% in 2021 and at least by around 12-12.5% annually over the medium term, thereby supporting the envisaged growth of the economy. Further, a regulatory framework for technology risk management and resilience of licensed banks is also expected to be introduced by the CBSL in a bid to prompt banks to upgrade and strengthen their information systems and technology platforms in line with the international standards and best practices.  In this regard, the CBSL will explore the possibilities of implementation of Supervisory Technology (SupTech) and Regulatory Technology (RegTech) solutions to streamline the data-intensive offsite supervision function by harnessing the capabilities of artificial intelligence (AI) and machine learning.  Meanwhile, the CBSL is also planning to introduce its International Transactions Reporting System (ITRS) by the end of this year.  “Considerable progress in preparatory work in this regard has been made during 2020. Upon establishment, the ITRS would provide a comprehensive platform for monitoring cross-border and foreign currency transactions through the banking sector. We expect continuous co-operation of the banking sector in the coming months for the successful implementation of this project as scheduled,” the road map noted.  In addition to these, an implementation framework for open banking in Sri Lanka is being investigated by the CBSL. Further, the road map noted that the CBSL has already commenced discussions with international payment service providers, such as PayPal, to enable payment receipt facilities for Sri Lankan residents, and they expect positive outcomes in the near future.  “As the future of the global financial architecture is essentially digital, the Central Bank will continue its deliberations with local and international stakeholders on its treatment of digital currencies, using thorough cost-benefit analyses and a long-term perspective,” the road map added.   


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