Economic Stability possible with stakeholders towards clear and definite goals: Cabraal

Economic Stability possible with stakeholders towards clear and definite goals: Cabraal

19 September 2021 07:00 pm

The establishment of economic stability in Sri Lanka would be possible in a joint effort with the stakeholders towards clear and definite goals, said newly appointed Governor of the Central Bank of Sri Lanka (CBSL) Ajith Nivard Cabraal, speaking to a recent interview held by Bloomberg, an international News Agency.

After taking office as the new CBSL Governor for the second time in his career, Mr. Cabraal emphasised that as the Central Bank formulates its economic stability roadmap, the most important part of it would be the stability that caters to market expectations, whilst ensuring that the impact of the pandemic would be curtailed as much as possible.

"Sri Lanka will achieve economic stability if stakeholders are working together towards clear and definite goals"

During the Bloomberg interview, the CBSL Governor was asked by the interviewer, "You might be taking over essentially a poisonous chalice," to which Cabraal responded, "There are great deal and strength in the economy which we should use now in order to get us into a new - more stable - situation. We have seen this kind of situation in the past as well. But I am confident that if we have all the stakeholders working together with clear and definite goals the country will be able to get there."

Mr. Cabraal also emphasised that the stakeholders may have contrary views, goals and expectations, but they can be provided with guidance as to how they should be moving forward  during this turbulent time.

"The Central Bank has a very important role to play right now, especially in terms of turbulence as you all know. Different stakeholders have different contrary views, goals and expectations. Our job would be to have a way forward so that the country can go into stability. We are going to unveil a roadmap in a few days, which will be taken into consideration. We can give the stakeholders a clear guidance on how they should move during the turbulent time. I'm confident that this could be done, we are looking forward to facing the challenges," the CBSL Governor noted.

Cabraal was questioned by David the interviewer: "You said that a road map will be given in a couple of days. What are some of the key areas and policies to cover?"

The CBSL Governor promptly responded: "The first and most important part would be the stability. We want to give markets expectations that we would be in a position to deal with all eventualities. There has been a perception gap in our country and that has been somewhat worrisome to us. But I believe that if we give clear guidance and leadership to take the country into that position, we would be able to meet the challenges.

Secondly, we would be able to ensure the effects of the pandemic as well as the lock down are curtailed as much as possible.

We have seen 08% growth on a very low base happening this year. It is a good start for me to take office and go forward. The inflation in subdued arrears, the debt and the foreign exchange situation could be challenging. I believe that with the new steps we are introducing - particularly the steps of non-debt inflows as well as the G2G arrangements we are pursuing now - we would be in a position to deal with these challenges as well. Growth and stability will go together. Forex and Jet are the matters we will give lots of attention to. We would ensure that the economy would move forward with some clarity."

The interview questioned the CBSL Governor for stability: "About ten years ago in Europe (when you were the governor of the Central Bank of Sri Lanka for the first time around), Mayuu Dragie came out and said he was prepared to do anything needed to bring stability to Euros. What are the choices you have to give confidence to these markets? Nothing is going to happen to the government and finances, including printing money and buying assets."

Cabraal smartly replied to the question: "You are absolutely right. Any Central Bank Governor would keep the goal of stability at the top of his agenda. I don't blame them for it. That's the right way to go. I will follow the same path as well. At the same time, what I would like to see happening is to ensure that the message of stability goes through, because sometimes the expectations, as well as the concerns that people have, can also bring destability. First the message, and then with that we have to ensure that each stakeholder is kept aware as to what they should be doing. Here I talk about the exporters, the importers, the borrowers, the lenders, the Government, the people, those who are remitting money and those who are receiving money. All these people have different interests. We have to ensure that these interests are satisfied in some way, but not all. And in so doing, we will find that there is certain expectation as well as a direction that we are providing to the economy.

I think the stability comes from the expectations being managed as well as certain steps being taken by the Central Bank, which shows that we are, in a way, putting our money where our mouth is. You mentioned money-printing, yes, that has been resorted to by many Central Banks all over the world. But all Central Banks know that that would be a situation we got to gently pull back on."

The interviewer countered: "Are you saying you are actively considering asset purchases and printing money?"

"Not really," said the CBSL Governor, "The printing of money has already happened. My job would be to pull that back gently without causing any pain and stress to the economy. I am keen that it does not root any additional pressure. By doing so, we are giving a very clear message to the markets that we are also going to be conscious of inflation being curtailed in the future, so that inflation expectations are not in any way aroused as a result of the current situation."

Cabraal also noted that the pandemic had caused a situation in which treasury bills had to be purchased by the Central Bank, adding that this has been practiced by many other countries as well. This, however, is not a permanent solution but a temporary one, he went on, adding that as to how Sri Lanka should ease that through is by leading a definite plan about the timing about quantity, which would be an important challenge to face in the next few months.