Interest rate cut will lead to economic upturn - CB Governor

The lending rate cut on three agricultural credit schemes operated by the Central Bank with effect from Friday (Dec 31) would boost the economy this year, pointed out Central Bank Governor Ajith Nivaard Cabraal.
“End of war in 2009 laid the platform to reduce interest rates, creating a business environment that encourages entrepreneurship.”
“In another two to three months, there would be a strong upturn in economic activity and a road map too will be released.”
The interest rates of the New Comprehensive Rural Credit Scheme, Agro Livestock Development Loan Scheme and Krushi Navodaya Special Loan Scheme have been reduced by 4 percent. The scheme is also extended to buyers of agricultural commodities who have signed sales agreements with farmers.
The Governor told FEB that there are cuts in bank rates, obviously due to the inflation that has reduced to 3.4%, and denied this has anything to do with the upcoming Presidential Election.
“When inflation is down, there has to be a tremendous change in the country’s economy and why play politics with such natural outcomes?” he questioned.
“When the inflation is down and interest rates cuts are not introduced, then it’s a topic of discussion. But citing interest rate reduction as a government election ploy is absurd,” he quipped. He also noted that, inflation was brought down to 1.5% only once during the past 25 years (in 1988). It has always been over 3.4% since 1977.
The annual average inflation rate, as measured by the Colombo Consumers’ Price Index (CCPI) (2002=100), computed by the Department of Census and Statistics, decelerated steadily to 3.4 per cent in 2009 from 22.6 per cent recorded in 2008. This is the lowest annual average (end year) inflation rate recorded since 1985. The point-to-point inflation reached 4.8 per cent in December, 2009 compared to 14.4 per cent recorded in December last year. (See CBSL media release below). The NCRCS loan scheme caters to 34 field crops including paddy and is provided to farmers for cultivation purposes. This scheme is also extended to buyers of these agricultural commodities, who have signed forward sale agreements with the farmers. Total loans amounting to approximately Rs. 10 billion are disbursed each year under this loan scheme.
Loans amounting to Rs. 500 million have been disbursed under the ALDL scheme which was introduced under the Government Budget of 2008 for increasing milk production in the country.
(SRM)