Sri Lanka tightens monetary target for 2008

July 16, 2008 (LBO) – Sri Lanka has tightened its year-end growth target for the monetary base in 2008 to 11.75 percent from 12.50 percent, the island’s central bank, which is running a quantity targeting framework to counter inflation, said. In April 2008 the bank tightened targets further from its beginning-of-the year plan, after inflation spiked up.

But by June inflation was running at a record high of 28.2 percent despite changing the weights of the widely watched Colombo Consumer Price Index (CCPI) after it hit 29.9 percent in April.

Sri Lanka’s central bank is targeting the monetary base or reserve money (money used for final settlements of transactions in a country) in a bid to influence credit growth and broad money which includes bank deposits.

The monetary authority has not changed its reverse repo rate (the discount rate at which money is printed to cover liquidity shortfalls in the banking system) from 12.00 percent for 18 months.

The bank no longer targets interest rates, but has restricted access to the window and freed market rates.

Credit Slows

The Central Bank said in its July monetary policy statement that private sector credit growth has slowed to 13.1 percent in May from 15 percent i