Central Bank Governor Ajith Nivard Cabraal said the Central Bank was aiming for a single digit interest rate regime and was confident it would soon be possible, but he urged the private sector not to waste time and create feasible projects in order to attract bank loans at low rates because four to five years from now, interest rates would be higher and there would be more competition among investors.
"A year ago interest rates were around 22 percent, today they are around 9 to 12 percent and we are aiming for a single digit interest rate environment and we believe this would soon be possible," Cabraal said addressing top business executives at Temple Trees yesterday morning.
He said lower interest rates generated additional savings for businesses as their interest costs would reduce.
"The entire stock of credit generated by the banking sector is around Rs. 1,700 billion. If interest rates fall by 1 percent in would generate a saving of Rs. 17 billion, a 10 percent reduction in interest rates would result in a saving of Rs. 170 billion. This savings has already taken place and you can see this in your balance sheets," Cabraal told the large gathering of corporate heads.
"Interest rates can be reduced further and we have asked banks to increase their lending," he said but added that banks would have to lend with care and responsibility and urged businesses to submit new project proposals that were feasible so that banks would be in a better position to lend.
"There is a lot the economy has to offer but make use of the opportunities now. Four to five years from now interest rates would be much higher and there would be more competition," Cabraal said.
He also said tax concessions would no longer be offered as they were in the past. "Things are very different now and made so much easier for investors. This is something they would have to understand and appreciate."
According to Central Bank data released last Friday (3), credit to the private sector had grown 6.2 percent while credit to the government had grown 19 percent while credit to public corporations grew 119 percent.
Commercial banks continue to invest heavily in government securities and benchmark Treasury bill rates fell further this week to 7.28 percent (six months bill) and 7.42 percent (12 months bill) with speculation that the Central Bank may be forced to reduce policy rates further.
John Keells Holdings Chairman Susantha Rathnayake last Monday told the Lessons Learnt and Reconciliation Commission that it was shocking and puzzling that significant private investments had not taken place 15 months after the conflict.
According to the IMF, the present level of private sector credit growth would not be enough to double per capita income nor take the growth rate above 7 percent. FDIs, which have fallen during the first six months of the year compared with the first six months of 2009, could pick up if investors are confident macroeconomic stability could be maintained.
source - www.island.lk
No comments:
Post a Comment