‘US Federal Reserve’s interest rate hike in 2017 to affect SL’

z_pi-lsegBy Hiran H.Senewiratne

The US Federal Reserve Bank of San Francisco will increase bank interest rates in 2017 under the new Donald Trump administration, which will have a negative impact on countries like Sri Lanka, Central Bank Governor Indrajit Coomaraswamy said.

Federal Reserve Bank President John Williams said he supports an  interest-rate increase in 2017 and will likely aim at Fed’s 2 percent goal, reports said earlier.

“To face the challenge Sri Lanka has placed the macro economic consolidation as a forward looking strategy, the Governor told a media conference last week at the Central Bank’s main office in Colombo.

He said that Sri Lanka is quite sound where macro economic policy framework is concerned to face such a hike, because the U.S. economy is well-positioned to raise bank interest rates.

He said the Trump administration is to undertake many economic policy decisions and the US Federal interest rate hike would be part of it, which would have some issues for the global economy.

The Governor said that Sri Lanka could record more than 6 percent growth in the coming year and will implement prudent economic decisions to fast track the development activities of the country.

Williams told the media recently in San Francisco, ‘Having a rate increase this year makes sense, having a few rate increases next year makes sense, in the context of how the economy has been performing and continues to perform.”

The Fed is assessing how much progress it has made toward its dual goals of 2 percent inflation and maximum employment as it weighs when to raise interest rates for the first time since last December.

While the U.S. central bank has missed its inflation goal for four years, core inflation has picked up and headline is expected to follow as the effects of an oil-price drop fade from the data.

U.S. unemployment is 5 percent — roughly consistent with the level Williams said he views as consistent with full employment. Officials projected one rate rise this year and two in 2017, according to the median estimate of their forecasts in September.

The target range for their benchmark policy rate is unchanged at 0.25 percent to 0.5 percent, although several officials have said the decision was a close call.