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Mar 08, 2014 (LBO) - Sri Lanka's interest rates have been kept higher than underlying conditions required, in order to protect savers, Treasury Secretary P B Jayasundera said.
Jayasundera said price reforms in state energy utilities, transport and water distribution had resulted a public sector deficit reversal of around 2 percent of gross domestic product.
"And today Ceylon Electricity Board, Ceylon Petroleum Corporation, have eliminated their losses, which is technically speaking an almost two percent of GDP turnaround," he said.
"That is why reliefs are coming to other two banks of the economy. That is the Bank of Ceylon and Peoples' Bank."
The two state energy utilities heavily borrowed people's savings in the two state banks to subsidize energy, which is mostly consumed by the richest income deciles in the country and big business including exporters catering to first world customers.
The credit ultimately pushed the country into a balance of payments crisis, when a required interest rate adjustment was delayed with injections of central bank credit (printed money) which eventually led to currency depreciation and higher inflation.
But the corrections had eased pressure in interest rates he said.
"We are not letting interest rates to drop to the level that could reflect this adjustment because we also do not want to hurt the depositors and those who live on interest income until such time the economy find suitable adjustments," he said.
In January the government also borrowed a billion US dollars from international markets which had flooded money markets, when the dollars were purchased by the Central Bank to generate rupees.
But policy interest rates had been held at the so-called 'repo' rate of 6.5 and also with term liquidity withdrawals.
In December there was surge in state enterprise borrowings from the banking sector amid low rainfall which pushed up thermal power as well a breakdown in a coal power plant which persisted into February 2013.
The plant has now been fixed, helping reduce costs, though the drought is continuing.
Jayasundera said price reforms in state energy utilities, transport and water distribution had resulted a public sector deficit reversal of around 2 percent of gross domestic product.
"And today Ceylon Electricity Board, Ceylon Petroleum Corporation, have eliminated their losses, which is technically speaking an almost two percent of GDP turnaround," he said.
"That is why reliefs are coming to other two banks of the economy. That is the Bank of Ceylon and Peoples' Bank."
The two state energy utilities heavily borrowed people's savings in the two state banks to subsidize energy, which is mostly consumed by the richest income deciles in the country and big business including exporters catering to first world customers.
The credit ultimately pushed the country into a balance of payments crisis, when a required interest rate adjustment was delayed with injections of central bank credit (printed money) which eventually led to currency depreciation and higher inflation.
But the corrections had eased pressure in interest rates he said.
"We are not letting interest rates to drop to the level that could reflect this adjustment because we also do not want to hurt the depositors and those who live on interest income until such time the economy find suitable adjustments," he said.
In January the government also borrowed a billion US dollars from international markets which had flooded money markets, when the dollars were purchased by the Central Bank to generate rupees.
But policy interest rates had been held at the so-called 'repo' rate of 6.5 and also with term liquidity withdrawals.
In December there was surge in state enterprise borrowings from the banking sector amid low rainfall which pushed up thermal power as well a breakdown in a coal power plant which persisted into February 2013.
The plant has now been fixed, helping reduce costs, though the drought is continuing.
