Tax Reductions Expected

Budgetary expectations are that import taxes on consumer durables will be reduced in Budget 2011 to be presented in Parliament tomorrow, market sources told The Sunday Leader.
Duty reductions will help spur credit growth through increased consumption, which in turn will help to reduce the excess liquidity levels in the market, they said.
The market was excess in liquidity of Rs. 134.21 billion on Thursday.
The recent import tax reductions on vehicles and electronic and electrical goods have had helped to increase credit growth, the sources added.
The market has, however in the past few days, experiencing excess liquidity of over Rs. 100 billion on an overnight basis.
“We have been debating among ourselves, for the past six months, why credit has not been growing,” the sources said. “Is it the fault of the banking system or does the fault lie with the borrower?”
The sources further said that due to seasonal import demand, there was pressure on the US dollar to appreciate. The Central Bank of Sri Lanka (CBSL) was preventing its depreciation by making available the greenback to the market (banks) at the Rs.111/70 levels.
CBSL says that they have excess reserves, if that is so, the excess could be channelled to the market this way, the sources said.
They further said that a rise in interest rates was “controlled” due to excess liquidity levels in the market. Meanwhile trading on Friday was dull due to the holiday atmosphere in country due to the President’s second swearing in ceremony that took place that day. (See also the lead story on this page)