Oct 16, 2008 (LBO) – Sri Lanka’s banking sector is sound amidst a global rout and early regulatory action taken to prick the bubble, Central Bank Governor Nivard Cabraal has said. The high inflation in early 2008 was partly caused by lax monetary policies in the second half of 2007 and also external inflation imported through the US dollar peg, in the form of high commodity prices.
“Our inflation is still high and we admit that, but at the same time it is on a declining trend,” Cabraal says.
“And that is what we need to be a little happy about, because we have been able to foresee some of the problems that others are grappling with and we have been able to take the measures so that our conditions become different.”
The central bank also collected several hundred millions of dollars by sterilizing external liquidity and boosted its reserves. A central bank usually invests reserves in foreign government bonds.
Cabraal says the bank cut some positions with some private banks before the international turmoil worsened.
“There were some positions held with AAA rated banks but we were able to read the signs and exit well in advance so