Jan 25, 2016 (LBO) – Sri Lanka’s Monetary Board held interest rates unchanged on Monday with inflation somewhat subdued in December, and the impact of last months’s SRR increase still being transmitted through the economy, a statement said.
The Monetary Board noted that “the policy adjustments made on the monetary and external fronts are still being transmitted gradually to the macroeconomy.”
This prompted maintaining the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) unchanged at 6.00 percent and 7.50 percent, respectively.
Inflation, measured by the Colombo Consumers’ Price Index, decelerated to 2.8 per cent, on a year-on-year basis, in December 2015 from 3.1 percent in November 2015.
Inflation based on the National Consumer Price Index decelerated to 4.2 percent, on a year-on-year basis, in December 2015 from 4.8 percent in the previous month.
Last month, the Central Bank increased the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of commercial banks by 1.50 percentage points to 7.50 per cent with effect from 16 January 2016.
Subsequently, excess rupee liquidity in the domestic money market fell from around 90 billion rupees in December to around 42 billion rupees, on average, the board said in a statement.
“The increase in SRR also induced an upward adjustment in market interest rates, and the growth of credit extended to the private sector by commercial banks is expected to decelerate in the period ahead, albeit with a time lag.”
Credit extended to the private sector remained the key driver of broad money growth, recording an increase of 27.0 per cent (year-on-year) in November 2015, compared to the growth of 26.3 per cent in October.
In November 2015, the net foreign assets of the banking sector improved with the receipt of the International Sovereign Bond (ISB) of 1.5 billion dollars issued on 27 October 2015.
“The issuance of the ISB also facilitated a reduction of net credit obtained by the government from the banking sector during the month of November, while credit obtained by public corporations also declined.”