CB adopts best practices to stop loose talk
The Central Bank (CB) in a progressive move is gearing to enforce precautionary measures to jam information leakages on rate decisions in a bid to stop ‘alleged’ insider dealing. Central Bank Governor Indrajit Coomaraswamy told the media at CB’s monthly policy meeting that the regulator henceforth will hold monetary policy meetings in which rate decisions are made, after markets are closed. “Our meeting will be held in such a way that decisions will be taken after markets are closed,” he said responding to a question on alleged insider trading.
Reiterating that this is a precautionary measure, he said that ‘nothing has happened’. “I am not saying anything happened, but as a precaution we will do that.” The question was on a suspected trade pattern before CB’s rate increase in July in which some in the industry had suspected an information leak. Dr. Coomaraswamy assured that the intended practice will stop the talk. He stressed that the CB is focusing energies on having independent monetary policy and effective regulation. “Let me look forward first, we are trying to put in place systems and processes which will be more suitable for our system.”
He also said that if the intention is to look back at everything that has gone on over the years, the CB staff will spend all their time looking into inquiries, he said replying to a comment on the infamous bond trading at the CB during 2015 and earlier this year. ”The Central Bank has an important role in ensuring price and economic stability and we’re trying to build an independent monetary authority. If the Committee on Public Enterprises reports that there should be an inquiry, my view it should be an external inquiry.
If the Central Bank has done something wrong it should not be the Central Bank that looks at that,” a frustrated Dr. Coomaraswamy, said, fielding the question. CB kept policy rates unchanged with Dr. Coomaraswamy optimistic on credit growth slowing about 20 per cent by year end on the back of the Asian Development Bank (ADB) lowering the economic growth forecast for Sri Lanka. Growth prospects for Sri Lanka edge lower on weak industrial performance and fiscal consolidation, in an update of its annual economic publication, Asian Development Outlook 2016 released a day earlier to the CB’s monetary policy review, ADB has said.
The multilateral agency lowered the GDP growth rate to 5 per cent for 2016 from the 5.3 per cent it projected in March this year owing to weak industrial performance and fiscal consolidation. The growth forecast for Sri Lanka in 2016 is revised down on unexpected weakness in the second quarter, which held growth in the first half to 3.9 per cent, the publication added. Dr. Coomaraswamy however said that he sees growth picking up in the second half on the year. “The first quarter growth was revised down from 5.5 per cent to 5.2 per cent and in the second quarter it was a disappointing 2.6 per cent. But there are some mitigating factors and our expectation is growth will rebound.
My view as to why growth may not have slowed down as much as 2.6 per cent is because proxies for growth like cement availability, electricity consumption, credit growth of about 25 per cent and low inflation was evident. So the money has gone somewhere.” The expansion in monetary aggregates in August was mainly driven by credit flows to the private sector and the government from the banking system, while credit to public corporations continued to contract during the month, a statement by the CB said.
“The growth of credit granted to the private sector by commercial banks was at 28.5 per cent, year-on-year, in July 2016, compared to 28.2 per cent in the previous month.” Dr. Coomaraswamy was adamant that this year they won’t go for any more foreign borrowings. ”Any money that needs to be found will be through local borrowings.” He said that Sri Lanka should be ideally looking at a growth in the excess of 6 per cent to 7 per cent and to achieve this target Sri Lanka’s exports and Foreign Direct Investments have to improve. “These two segments are definitely underperforming now.”