Recent volatility on yields of government securities is unwarranted: CBSL

Certain market interest rates, such as yields on government securities, have shown unwarranted volatility recently, which is not in line with monetary policy expectations, the Monetary Board of the Central Bank said announcing its commitment to continue the current accommodative monetary policy stance.

The Central Bank reiterates that the high level of excess liquidity in the money market and the reduction in policy interest rates thus far are intended to result in a stable low-interest-rate environment while providing a positive real return to savers.

“The Board noted the recent slowdown in credit disbursements to the private sector and inadequate lending to productive sectors of the economy, and stressed the need for the financial system to actively lend to productive sectors in order to support the ongoing recovery of domestic production-based economic activity,” the Central Bank said.

“Further, the Board observed the recent uptick in certain market interest rates, and reemphasised its commitment to continue the low-interest rate structure until the economy shows signs of sustained revival, in the context of the low inflation environment.”

Meanwhile, the exchange rate has recorded intermittent volatility, and the Central Bank said it has taken steps to dampen excessive speculation causing such volatility in the foreign exchange market.

The Sri Lankan rupee has depreciated by 4.5 percent against the US dollar thus far in 2021 following the 2.6 percent depreciation in 2020.

Gross official reserves were estimated at US dollars 4.8 billion, with an import cover of 3.7 months, at the end of January 2021.

“Discussions are continuing on securing foreign financing,” the Central Bank highlighted.

“Furthermore, increased non-debt creating foreign exchange inflows are expected, supported by the measures introduced by the Government and the Central Bank.”