Sri Lanka keeps its key policy rates unchanged, inflation expected to moderate
Sri Lanka on Monday decided to keep its key policy rate unchanged for the month of October as the inflation on a year on year basis is expected to continue to moderate during the remainder of the year 2011.
Central Bank says the inflation will moderate with the continuous improvements in the domestic supply conditions supported by the high growth momentum of the economy as well as the expected moderation of international commodity prices.
The Bank in its October monetary policy statement also said, the excess liquidity in the domestic money market has declined gradually to a more desirable level and the short term rates have returned to normalcy following an upward pressure observed in the first week of October.
The statement also added that “The high rate of expansion in broad money supply continued, recording a year-on-year growth of 20.6 per cent in August 2011”
The year-on-year increase of credit to the private sector in August has seen a growth of 34.1%.
“Credit extended to the private sector has been increasing by around Rs.36 billion on average per month in 2011 reflecting continued expansion of economic activity”, the bank added.
It says the increase in net credit to the government by the banking sector has also contributed to the monetary expansion.
However, the Monetary Authority says the growth of money supply is expected to moderate in the period ahead given the decline in excess liquidity in the money market.
Central Bank points out that the inflows into the services account continue to cushion the impact of the trade deficit on the Balance of Payments.
“Substantial amounts of foreign inflows on account of direct investments, equity investments and other inflows to the private sector are expected during the remainder of the year” added the statement issued by the Monetary Authority.
The Bank will continue with its Repurchase rate at 7% while the Reverse Repurchase rate will remain at 8.50%.