Sri Lanka policy rates unchanged, private credit low

Nov 16, 2012 (LBO) – Sri Lanka’s central bank kept the rate at which money is injected into the market at unchanged at 9.76 percent at its November monetary policy meeting, though money has been injected at below market rates on longer tenures in recent weeks. Another auction this week was cancelled, but the Central Bank’s Treasury bill stock anyway went up to 215 billion rupees on November 16, with a further 4.4 billion rupees in excess liquidity.

Sri Lanka’s rupee peg has been volatile in recent weeks. Before the term auctions began in the first week of October small outright sales of central bank held Treasury bills helped stabilize the currency peg and build up foreign reserves lost during a balance of payments crisis.

The Central Bank said by end September higher inflows from remittances, capital inflows helped create a surplus of 269 million US dollars in the balance of payments by end September 2012 and reserves were at 7.1 billion US dollars.

Sri Lanka has suffered balance of payment crises and high inflation every since a central bank with an unstable peg was created in 1951 abolishing a currency board that had kept the economy stable from the previous century

From mid 2011, the central bank pushed credit and imports to unsustainabl