By 
Bank committed to reaching more than 100 billion dollars in climate finance
Roberta Casali, ADB Vice-President for Finance and Risk Management recently said that she was encouraged to see policy rates beginning to normalise in Sri Lanka.She said so addressing the 2024 Asian Regional Forum on ‘Investment Management of Foreign Exchange Reserves’, held in Japan on 25th September 2024.
Delving into the topic, at the 14th Asian Regional Forum she said that one of the strengths of the forum was that they could bring together speakers and participants from large and small countries; upper-middle income and lower-middle income; east and west; north and south to exchange views, to prompt dialogues, and to share best practices in the management of foreign exchange reserves.
The following are some excerpts from her speech.
“We now find ourselves at an inflection point in the interest rate cycle. Inflation is moderating, and policy rates are being reduced – not only by the Fed and the ECB, but also in many of your countries. The question is no longer if interest rates will be cut, but by how much and over what time horizon.”
“Of course, there is no one-size-fits-all for monetary policy, as evidenced by our host country Japan which is currently emerging from a long period of negative interest rates. In March this year, the Bank of Japan increased its short-term interest rate for the first time in 17 years to a range of zero to 0.10%, and subsequently around 0.25% in July.”
“On the other hand, the People’s Bank of China continues to stimulate the PRC economy with interest rate cuts, most recently this week with a suite of adjustments to 7-day and 14-day repo rates to 1.5% and 1.85% respectively, as well as a 50 basis point reduction in banks’ reserve requirements ratio. The 3-month SHIBOR, which is often used by ADB to price our renminbi lending operations, is also sub 2%.”
“We have also seen significant adjustments in policy rates from central banks in other parts of Asia. I am particularly encouraged to see rates beginning to normalize in Pakistan and Sri Lanka. Policy rates in the Pacific Island countries have been somewhat protected from the sharper swings and have remained relatively low..”
“ADB’s liquidity buffer is partly debt-financed. This year, we will complete a 32 billion US dollar borrowing program to finance ADB’s loans, to re-finance maturing obligations and to support our investment portfolios. ADB’s most loyal and important investor segment is the central banks, and of course this includes all of you. So, I would like to acknowledge your generous support and underline how important this is to ADB operations and how much it is appreciated.”
High US dollar policy interest rates have resulted in higher US dollar bond yields, which obviously means that our portfolios have delivered better returns. In your case, this has meant higher annual transfers to government which in turn may assuage the need for borrowing or support fiscal expansion. In ADB’s case, it allows us to support more technical assistance and grants to our developing member countries while strengthening our capital base.”
“Let me now turn to one of the perennial topics of both ADB’s Public Debt Management and Reserves Management Forums: that is Local Currency Finance.”
” Brazil’s Ministry of Finance, its Ministry of the Environment, and the central bank of Brazil have formalized a multi-billion dollar agreement with the Inter-American Development Bank, our peer organization in Central and South America, to crowd-in more private capital while insulating such investments from exchange rate volatility. In Asia and the Pacific, we should also consider such initiatives. And as always, my ADB’s Treasury team is at your disposal to discuss how best to operationalize local currency operations in your markets.”
“Some of you may have seen ADB’s announcement earlier this month “to boost the region’s response to climate change, ADB will target for climate finance to reach 50% of its total annual committed financing volume by 2030. ADB is committed to reaching more than 100 billion dollars in cumulative climate finance from 2019 to 2030.”1
“Certainly, the formal development of an ESG Framework would require the reserve management objective to be defined/approved by the Board to add “sustainability” as a 4th factor besides security, liquidity and return, and this can prove contentious. But we must also evolve to meet our changing times – it wasn’t so long ago that quantitative easing was the new challenge facing our industry, but we can look back now and note how this has grown into a major monetary policy tool.”
“I urge you all to re-consider all possibilities to support climate change mitigation and adaptation in your financial markets. It is the time for bold measures and leadership. This represents a strategic evolution in our governance, our strategic asset allocation policies and our investment operations.”
Bank Lending Rate in Sri Lanka reached an all-time high of 27.89 percent in November 2022 and downward adjustment in market lending interest rates continued in the past 18 months. The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 26 September 2024, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 8.25 per cent and 9.25 per cent, respectively.
Central Bank Governor Dr. Nandalal Weerasinghe on Sep. 27 assured that the implementation of a single policy rate mechanism is expected within this year.
Speaking to the media after announcing the latest Monetary Policy of the Central Bank, he said,” There is a lot of technical work to be dealt with as we move towards a single policy interest rate mechanism. We have already done a large part of the work and are having internal consultations with the Monetary Board to complete the remainder.”
Comments