Early Action

May 27, 2008 (LBO) – Financial regulators should take early preventive action and anticipate trouble spots and Sri Lanka’s banks should keep an eye on apparel firms to manage possible future risks, the island’s central bank governor said. “If necessary policy interventions are done ahead of time, interventions requiring cash could be avoided,” Cabraal said.

“That is what central banking is all about. You anticipate events in advance. Any system instability could start small, but spread.”

Early last year, before the sub-prime bubble burst, the central bank had imposed additional provisioning of one percent for good loans.

Banks protested strongly against the move at the time.

“All hell broke loose,” Cabraal recalled. “But today there are not very many who are finding fault with us.”

Governor Nivard Cabraal said Sri Lanka was pushing to extend GSP+ trade concessions with the European Union but it was prudent to think of mitigating the effects of a possible loss of the concessions.

“While all efforts are being made, should we put all the eggs in one basket and expect it to be renewed?” he asked at a seminar on financial stability organized by the Bank of England and Sri Lanka’s central bank in Colombo Tuesday.