Sri Lanka tightens monetary policy; discount rate 19-pct from December

Nov 23, 2007 (LBO) – Sri Lanka has tightened monetary policy by restricting access to a discount window and creating two policy rates, days after the Central Bank again failed to hike rates, despite raging inflation. The Central Bank loosened monetary policy in April 2007 despite criticism from independent analysts and printed 45.2 billion rupees for the government in five months, sending inflation rocketing to 19.6 percent by October and the rupee plunging down.

Dual Policy

The central bank has now told commercial banks that it would continue to print money at 12.00 percent for banks to meet liquidity shortfalls but the discount facility would be limited to four times a month from December 03.

Any further shortfalls would have to be borrowed at 19.00 percent.

“The penalty rate will be subject to review from time to time and may be changed in accordance with prevailing monetary conditions,” the Central Bank warned banks and primary dealers.

“Participants seeking the facility on a particular day should not be a net lender in the money market on the same day.”

Shortly after resuming money printing in the second half of 2007, the Central Bank also relaxed access to its discount win