(Updates with details, comments from governor’s address to staff)

COLOMBO, Sept 15 (Reuters) – The Sri Lankan central bank will prioritise reducing foreign debt and look at managing the current account and currency better in order to address the country’s economic challenges, the bank’s newly re-appointed governor said on Wednesday.

Governor Ajith Nivard Cabraal said the Central Bank of Sri Lanka (CBSL) will announce an interim policy package on October 1 in the form of a short-term road map that could then be followed by all stakeholders.

“Our priority is incrementally reducing foreign debt and setting a policy to attract non-debt inflows. The current account will be better managed, rupee value has to be managed and GDP has to be grown,” Cabraal said while addressing the staff at the central bank.

“Many see this as a huge challenge and they are right. The challenge before us is to address these issues,” he added.

Cabraal’s reappointment as governor — he was also governor from 2005-2014 — followed the resignation of Weligamage Don Lakshaman from the post last week.

The island nation was already facing economic challenges when the COVID-19 pandemic hit last year and further dented revenues from tourism and raised severe concerns about the country’s external debt repayment abilities.

“We have to provide a balance. The next two-three or six months we must rebalance the economy. This will not be easy for the central bank,” Cabraal said.

The central bank will need to be cautious about the impact of its measures on all stakeholders but “tough policy measures will have to be taken”, he said, adding that the CBSL will also take a lead in providing direction to financial markets.

“This is not the time to abrogate our responsibility to markets. We are here to find solutions and implement them in a systematic manner to take the economy forward,” Cabraal said.

The yield on country’s benchmark 10-year domestic bond has risen sharply in recent weeks and is up 160 basis points since late July, at 10.6%.

On the issue of seeking a bailout from the International Monetary Fund, Cabraal said he has absolute reliance on the central bank and monetary board and it would not be just to seek outside support.

“Central bank needs to support the aspirations of the people. We would be making sure monetary policy will be implemented in tandem with fiscal policy,” Cabraal said.

The central bank will need to provide clear and firm guidance to all economic stakeholders, particularly at turbulent times like the present.

“Therefore, the Central Bank’s first and urgent priority under my watch, will be to provide clarity with regard to the movement of Sri Lanka’s macro-economic fundamentals in the desired path and thereby ensure stability in the financial sector,” he added. (Editing by Kim Coghill, William Maclean)

Read More