Wednesday, January 2, 2013

Summary : Road Map 2013

Summary "Road Map 2013"
Inflation & Rates
·         Medium term macroeconomic framework will give priority to maintaining inflation (particularly core inflation) at mid-single digits in the next 5 years.
     Sustainable Economic Growth & Employment will also be key focus area
•   In terms of Monetary Policy:

   Monetary Targeting measures (eg: credit ceiling) will be used when necessary to supplement traditional monetary policy tools (eg: Rates; OMO etc)

   The policy corridor (ie: Repo & Reverse Repo Rates) will continue to guide short-term interest rates

·         The stability of the benchmark yield curve will be promoted to help the effectiveness of Monetary policy transmission 

·         Greater focus on real interest rates to promote domestic savings and productive activity

 Central Bank's communication policy will continue to act as key transmission instrument in managing inflation expectations
·         To reduce reliance on short-term bank credit and thus reduce pressure on rates, non-inflationary sources of financing will be facilitated:
 Equity and corporate bond market will be encouraged to play greater role in supporting Economy's financing needs

    Stock Market capitalization estimated to be approx.US$25bn in 2013 and hit a target US$70bn by 2016

  Size of corporate debt market estimated to be approx. US$3bn in 2013 and hit a target of US$10bn by 2016
·        Despite steps to minimize losses in SOEs, continued losses mean that urgent steps need to be taken to ensure CEB and CPC in particular break-even by 2013
FX & External Sector
·         A flexible but stable (intervention possible in event of drastic imperfections) Exchange Rate (ER) will be maintained. 
 Activities which have direct impact on ER (eg: FDI, portfolio investments, bond market investments, raising debt capital, foreign borrowings, private and worker remittances among others) will be facilitated

 Several existing exchange control policies will be relaxed
·         Balance-of-Payments to move to surplus in 2013 & beyond;

 Trade and services account gap will be managed proactively to avoid undue pressure on B-o-P & ER (eg: inflows to services account will be keenly supported)
·         Since oil imports account for 25% of current imports, there will be a renewed focus on increasing renewable energy share in Sri Lanka's energy mix
Medium-term Target of per capita income to US$ 4,000 by 2016
·         To achieve target of doubling per capita income to US$ 4,000 by 2016 and facilitate second wave of growth while avoiding the "middle-income trap" :

 CB will attempt to help key sources of FX earnings to shift towards more service based exports

 Steps to bridge the high savings-investment gap through medium to long term measures 

 Since productivity growth is a vital instrument of improving living standards, careful attention will be given to areas of high labour force concentration and new approaches to enhance productivity of such areas.

 Since banks are crucial for the achievement of  a US$ 100 billion economy by 2016 

   regulatory framework will be reviewed and amended to facilitate the  business models  of banks and NBFIs 

   policies for diversification of business and  income, through fee-based services will be encouraged

    consolidation in the banking and the NBFI sectors encouraged

   Diversification of sources of funding and business operations mainly through foreign sources will be encouraged 

   Regulate the risk profiles of banks and NBFIs  further
source - acuity research

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