Sri Lanka policy rates steady

June 14, 2011 (LBO) – Sri Lanka’s central bank kept policy rates steady in June, saying credit peaked in April and money supply expansion may ease, and international commodity prices are also stabilizing, which will help inflation. Sri Lanka’s 12 month inflation fell to 8.8 percent in May from 9.8 percent in April and remains one of the highest levels of inflation in the world.

Sri Lanka’s policy rate at which excess cash is drained from the system is at 7.0 percent, below recent inflation. The rate at which liquidity is injected is 8.50 percent. But amid excess liquidity in the system from external inflows, the repo is the active rate.

Brian Aitken, who heads an International Monetary Fund mission to Sri Lanka also said he expected inflation to ease to around 7.0 percent levels in the near future.

Sri Lanka’s broad money (M2b) grew 18.4 percent in April with private sector credit growth 31.4 percent to April and the government has also borrowed.

But the volume of credit disbursed has fallen to 26 billion rupees from around 33 to 35 billion rupees from last August, the Central Bank said in its June 2011 monetary policy review.

Credit to state corporations had fallen by 27 billion rupees in the first four m