April 02, 2008 (LBO) – Sri Lanka’s money supply growth has slowed faster than expected in the first quarter of 2008, amid tight monetary policy and credit growth was also falling, the central bank has said. Reserve money, measured as a quarterly average grew to only 273.7 billion rupees compared to a targeted ceiling of 281.5 billion rupees, showing a growth of 11.7 percent against a target of 14.9 percent.
Though policy rates have not been raised for more than a year, the Central Bank said market interest rates have been allowed to go up.
“Accordingly, market interest rates adjusted upwards and continued to remain at a higher level,” the Central Bank said.
“This has led to a substantial decline in the demand for money, helping to maintain reserve money well below the targeted level during the first quarter of 2008.”
Reserve money is a narrow measure of money which measures the reserves of the banking sector which forms a base to drive money supply in the country.
The monetary authority targets reserves in the hope of influencing credit and a broader supply of money and ultimately inflation.