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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Policy too severe? PB says monetary policy easing may be needed

Policy too severe? PB says monetary policy easing may be needed

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CSE.SAS

CSE.SAS
Global Moderator

* If May, June data show improvement

Treasury Secretary Dr. P. B. Jayasundera is probably feeling recent measures to contain a balance of payments problem are too severe.

"Sri Lanka may need to consider easing monetary policy, if, trade data for May and June point to significant weakness in global demand for the island’s goods," Treasury Secretary Dr. P. B. Jayasundera told Reuters on Thursday.

"A further export slowdown would put additional pressure on the economy as domestic demand has already shown signs of cooling following a series of tough policy measures earlier this year," Dr. Jayasundera said.

"Demand has drastically reduced. We must watch May and June data seriously and see whether there is a need for any softening in monetary policy. A policy rate reduction may be considered in July or August."

The Central Bank has raised key policy rates twice since February to more than two-year highs, restricted banks’ lending, and allowed flexibility in the rupee exchange rate in a bid to curb inflation, reduce the trade deficit and avert a balance-of-payments crisis.

Jayasundera said the drastic depreciation of the rupee combined with a tight monetary policy was a "killer" as it had already reduced consumer demand.

He also told Reuters that he believed the rupee has hit a bottom and would recover to around 125 in the medium-term.

"In my view, the exchange rate has reached its maximum and will stabilise in the medium term at the earlier expected level," Jayasundera said, referring to 125 per dollar level.

The government has been faulted for acting to late to contain pressures on the balance of payments, but the measures have been commended by the IMF, sovereign ratings agencies and by even its harshest critics.

Speaking to The Island Financial Review earlier this year UNP Economic Spokesman Dr. Harsha De Silva said the policy measures were painful, but will work. "They (the policy measures) should help because they are the only options available," he said.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=54410

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