Central Bank willing to provide liquidity support to banks should there be any need

The Central Bank this week offered their willingness to provide liquidity support to the banking system, should there be any need from the economic impact from the floods that caused through the weekend, its Governor said. 

Speaking at the Sri Lanka Economic and Investment Summit which wrapped up this week, Dr. Nandalal Weerasinghe said in response to a question on the disaster response by the Central Bank.

While adding that the economy now operates with buffers to confront these types of weather related events, he said they will not hesitate to provide liquidity support to the banking system should there be a need. 

“On the monetary side, we are willing to provide any liquidity support to the banking system, and we are ready to support if there is any need”, Dr. Weerasinghe said.  

“(But) in the last couple of days, we haven’t seen that”, he added. 

According to the new Central Bank Act No.16 of 2023, monetary financing or what is popularly known as money printing is prohibited unless there is an emergency or an event which significantly constrains the access by the government for market funding. 

“Notwithstanding the provisions of subsections (1) and (4), upon a Proclamation being made under the Public Security Ordinance (Chapter 40) in the interests of the Public Security and the preservation of public order, or a global health emergency that substantially and materially disrupts or constraints access by the government to market funding, the Central Bank may purchase Treasury Bills in the primary market,” the section 86, clause (5) of the Act said. 

This means the Act provides for the Central Bank to print money for exigencies such as pandemics, an act which the then Central Bank did during 2020 and 2021 to provide support to the people affected by the virus and also to backstop the businesses, banks and the economy.

This includes sending money in several rounds at Rs.5,000 each to a family, containing the spread of the virus at the time and the payment of salaries for State sector employees who stayed mostly at home, including the school principals and teachers who took to streets demanding higher salaries.