Spotlight: Econ Op-eds in Summary (Week ended 3rd February '21)

21-2-4

Snapshots


Bank credit to private sector picking up at slow pace in response to monetary easing


By: Prof. Sirimevan Colombage


  • From the early onset of the pandemic, the Central Bank of Sri Lanka (CBSL) took substantial steps to attempt and alleviate negative economic consequences, and attempt to provide relief to businesses and households. However, low interest rates primarily went to the government itself, as the private sector remained reluctant im borrowing.


  • This led to large amounts of government debt being financed through these low interest rate measures, helping manage short term budget requirements. However, this has created excess liquidity in the market, that would spill over into rising imports and high inflation as time goes on, especially once import controls are relaxed.


  • Combined with the dollar liquidity pressures the country is facing, this situation is causing high levels of uncertainty in Sri Lankan markets, which prevents the monetary relief from adequately reaching the population. Authorities will need to look at managing these impacts, namely those of liquidity and inflation, if the upcoming economic periods are to remain fundamentally stable.


For the full article – Refer the Daily FT


(Compiled by: Chayu Damsinghe)

Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. The bullet points provided for each summarised opinion article is written by Frontier Research and has no connection to the respective author. Furthermore, the information contained in these reports/emails are confidential and should not be shared publicly. Disclosure, copying and distribution is strictly prohibited.