Quo Vadis Economy?
The business community is concerned about the stability of the economy but they don’t want to talk about it due to fears of being exposed, a banker speaking on the grounds of anonymity told this reporter.
He made these comments after he said that there is a contraction in demand for bank borrowings not due to high lending rates, but due to questions about the island’s economic stability besetting the minds of the local business community. Asked whether they are concerned about Sri Lanka’s standing in the international community? He said that everybody is concerned about it. Sri Lanka has been virtually ostracized by its key export and tourism market the West and its allies due to allegations of war crimes committed during the closing stages of its recently concluded terrorist war.
The source answered in the affirmative when he was asked whether corruption and law order issues were also a cause for concern. Paucity of foreign direct investments (FDI)? FDI is not coming in, the source confirmed. On the exchange rate (ER)? He said that the ER would remain subdued this month, but would again feel the heat next month and in August due to the holiday season.
The ER in two way quotes closed last week at between Rs. 132/20/130/40 and Rs. 130/50/130/60 levels in two way quotes, after closing at the Rs. 129/70/130 level in spot interbank trading the previous day, different information supplied by two bankers said.
Meanwhile the source said that more could be done by the Government to curb import pressure. Like making matches that used to “explode” in one’s hands during the 1970-77 period? This reporter asked, to which he got an evasive laugh. The source however said that the lack of Government support to local industries was a cause for concern.
However that may be, the source who works for one of the island’s bigger commercial banks claimed that a number of such banks which had no liquidity problem however had difficulty in lending due to no takers in the market. “It’s a problem for three or four of such banks which are actually contemplating in cutting down on their deposit rates,” he said. They don’t need to mobilize any more deposits.
Deposit rates in recent times have had surged due to a liquidity crisis facing the economy. “But as a result of an ‘18% cap’ in lending this year, a number of banks have had already met 50% of this target and thus want to slowdown in lending,” he said.
On rising inflation which would have a mitigatory effect in dampening pressure for a rate hike? That is a cause for concern, the source admitted.