In a bid to bolster economic recovery efforts, the Central Bank has revealed its comprehensive strategy for 2024 in its recently unveiled ‘Annual Policy Statement 2024’. Governor Dr. Nandalal Weerasinghe outlined a series of ambitious measures aimed at ensuring sustained growth amidst global and local economic uncertainties.
One of the central pillars of the plan is the consideration of adopting a single policy interest rate mechanism, a departure from the existing dual policy rates system. This move is intended to enhance the effectiveness of monetary policy transmission and signaling, ultimately contributing to a more robust economic environment.
Despite recent upticks in inflation attributed to administrative measures, the Central Bank remains steadfast in its commitment to maintaining CCPI-based headline inflation at 5%. Dr. Weerasinghe emphasized the importance of vigilance in monitoring any developments that could potentially challenge the inflation outlook, signaling a readiness to implement proactive monetary measures if needed to maintain domestic price stability.
Another key aspect of the plan is the introduction of an Open Market Operations (OMO) auction schedule, designed to improve the efficiency of monetary policy implementation. The Central Bank aims to introduce a user-friendly system for OMO, with a smooth transition expected by 2025.
In line with efforts to align with international best practices, the Central Bank plans to review the Statutory Reserve Requirement (SRR) framework. This initiative seeks to enhance flexibility for Licensed Commercial Banks (LCBs) in managing reserves while optimizing the SRR as a monetary policy instrument. Stakeholder consultation will precede the implementation of these proposed policies, with a focus on optimizing the SRR framework for the broader economy and financial system.
To prevent an overreliance on liquidity facilities, the Central Bank has imposed restrictions on access to standing facilities, with the possibility of revisiting these measures in the future as market activity improves.
Addressing short-term risks such as upcoming elections and interest rate fluctuations, Dr. Weerasinghe underscored the importance of completing the IMF bailout program and progressing with external debt restructuring. He emphasized that the successful continuation of these initiatives would be instrumental in restoring market confidence and stability.
Looking ahead, the Central Bank reaffirmed its commitment to maintaining a market-determined and flexible exchange rate to mitigate external shocks. Additionally, monthly data on the external current account, particularly on trade in services, will be reported based on International Transactions Reporting System (ITRS) data from 2024 onwards, further enhancing transparency and accountability.
Dr. Weerasinghe concluded by expressing confidence in the Central Bank’s ability to formulate and implement effective policies. He called for collective efforts and collaboration with stakeholders to navigate the challenges ahead and pave the way for a brighter economic future for all Sri Lankans.