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Rates Unchanged As Predicted

Feb 12, 2011 1:50:27 PM - thesundayleader.lk

Central Bank of Sri Lanka (CBSL) at Tuesday’s Monetary Board meeting left its key policy rates unchanged, ie the overnight repo and reverse repo rates at 7% and 8.50% respectively, as exclusively reported in the lead story on these pages last week under the heading “IMF Hints At No Policy Rate Change.”
The article said, “IMF Resident Representative in Sri Lanka Dr. Koshy Mathai hinted that there won’t be any change in CBSL’s policy rates at Tuesday’s (February 8) Monetary Board meeting.
Mathai speaking to reporters on Thursday (February 3) made a justification of not raising rates despite inflationary pressure on the economy. He said that such inflationary pressure is due to supply side conditions, mainly caused by a hike in vegetable prices due to bad weather.
‘But vegetables are generally monthly harvested crops, so the probable one off supply side inflationary shocks may be ignored, what needs to be watched is whether there are any percolating effects, such as the demand for a wage hike due to rising food prices,’ he said. Then a rate hike in order to control money supply is justifiable to bring prices down, he said.”
However a market source told this reporter on Tuesday that prior to the release of the monetary policy statement, they expected rates to remain unchanged.
A seemingly unusual happening was CBSL overlooking to send The Sunday Leader its monetary policy statement on Tuesday, which they generally don’t fail to do by e.mail on the very day that statement is made. However Wednesday’s dailies did carry their statement.