The Central Bank of Sri Lanka yesterday (09) defended its money printing and stated that the bank has the necessary instruments to mop up excess liquidity if the need arises.
“Excess liquidity is a result of the Central Bank pumping money into the system. I think it is the prime responsibility of any central bank, not just the central bank of Sri Lanka any central bank around the world – to provide sufficient liquidity to the banking system and also to ensure that the public has sufficient currency in their hands, especially in an unusual or exceptional circumstances we are facing like now, “Senior Deputy Governor of the Central Bank Dr. Nandlal Weerasinghe told media whilst addressing the monetary policy meeting in Colombo.
“If we didn’t do that there would certainly be a liquidity crunch and if you look at the measures that we have implemented during this COVID-19 period it clearly explains that because we pumped sufficient liquidity into the system people have been able to conduct their transactions smoothly and also there have been sufficient money in the banking system for them to meet their day-to-day needs in this difficult period,” Weerasinghe added.
Speaking further he also expressed the following:
“The concern that anyone wants to raise is that basically whether this would lead to high inflation. But then I don’t think that will happen. Right now what we see is that inflation is very well anchored at the below of our target range and there is no evidence of any overheating of the economy in terms of growth rate and also in terms of the balance of payments (BOP). That is why the currency is now appreciating and we are building up our resources.”
“In simple terms, Printing money is providing liquidity to the markets and that wouldn’t have any adverse impact as far as we can say for now but if we are going to see any adverse impact going forward we have lots of instruments to absorb liquidity any time through open market operations.”