Sri Lanka holds policy rates amid higher inflation

Feb 12, 2013 (LBO) – Sri Lanka’s central bank held its main policy rate at which money is injected at 9.5 percent in February after cutting rates in December, while inflation continued to blaze at four year highs above the policy rate. The monetary authority expects inflation to fall after March 2013.

Update II Consumer prices in Sri Lanka’s rose to 9.3 percent in June 2012 following steep depreciation of the rupee against the US dollar in the first two quarters of the year, and had remained stubbornly high losing its recent record of generating only single digit inflation.

The monetary authority cut policy rates by 25 basis points in December and in January inflation rose 9.8 percent from a year earlier, overtaking its key policy rate.

Analysts had also voiced concern at volumes of money injected (at below its policy rate) into the banking sector, through so-called ‘term auctions’ a type of dangerous quantity easing activity, from the the third quarter of 2012, rather than the absolute interest rate.

The central bank said following its policy rate cut in December secondary market interest rates had started to decline and bank deposit and lending rates will also start to fall.

The Central Bank said in