Sri Lanka relaxes monetary policy

July 09, 2010 (LBO) – Sri Lanka has relaxed monetary policy cutting rates by 25 basis points and raising its target from reserve money, the narrowest money supply through which final transaction in the economy are cleared. The central bank cut its reverse repo rate to 9.50 percent and the repo rate to 7.25 percent and increased its annual (average) increase for reserve money to 334 billion rupees, or a 21.2 percent growth, up from an original target of 14.5 percent.

Central Bank said inflation was falling, private sector credit was growing and the economy was growing faster than expected.

“Taking into consideration these developments in the economy the Monetary Board has decided to revise the policy interest rates downward,” the central bank said.

“In response to this, lending rates of commercial banks are expected to adjust further downward, stimulating economic activity.”

Twelve month inflation fell to 4.8 percent in June, though prices rose in absolute terms during the month.

The central bank said growth in broad money fell to 15.5 percent in May 2010 from 18.6 percent at the end of 2009.

From late