ECONOMYNEXT – Sri Lanka will impose deposit rate caps in a bid to bring down interest rates, President Ranil Wickremesinghe said as inflation runs at 70 percent and price controls on consumer goods were also planned in another regressive move.
Sri Lanka had to raise interest rates to stop money printing and a balance of payments crisis was triggered by two years of money printing to miss target interest rates. To stop the crisis, private credit and the economy have to be smashed.
“High-interest rates are beneficial to some but it contracts credit and slows the economy,” President Wickremesinghe told parliament.
“Limits will be imposed on deposit rates to reduce interest rates.”
President Wickremesinghe has already raised taxes to reduce the deficit and money printing. Interest rates won’t fall in Sri Lanka until the rupee is floated temporarily and the credibility of the peg is re-established.
The plan to control deposit rates which are now around 20- 25 percent comes as inflation is running at 75 percent.
Central Bank Governor Nandalal Weerasinghe said he was not aware of the move.
Price controls will be established on some ‘basic consumer goods’ he said.
Sri Lanka also plans to ‘relax foreign exchange laws somewhat” to improve inflows, he said.
More import controls will be imposed to limit ‘non-essential imports.
A more healthy open market system will be established he said. (Colombo/Sept06/2022)