Interest rates unchanged after monetary policy meeting

Nov 24, 2015 (LBO) - Sri Lanka's Monetary Board held interest rates unchanged after a monthly policy meeting citing low inflation and a lack of necessity to change rates given loose monetary policy in the region. The Standing Deposit Facility Rate (SDFR) was held at 6.00 percent, the Standing Lending Facility Rate (SLFR) at 7.50 percent and the Statutory Reserve Ratio (SRR) at 6.00 percent. Headline inflation, as measured by the Colombo Consumers’ Price Index, remained low, increasing to 1.7 per cent on a year-on-year basis in October 2015 from negative 0.3 per cent in September 2015. "However, reflecting the firming up of aggregate demand conditions in the economy, core inflation continued to increase during last eight months reaching 4.4 per cent in October 2015, on a year-on-year basis, compared to 3.2 per cent recorded at end 2014," a statement said. On Monday, Central Bank Governor Arjuna Mahendran said Sri Lanka has no need to raise interest rates at the moment given the loose monetary policy being followed in regional countries such as India. In the monetary sector, the year-on-year growth of credit granted to the private sector by commercial banks increased further to 22.

2 per cent in September 2015 from 21.3 per cent in the previous month. Broad money (M2b) grew by 16.0 per cent (y-o-y) in September 2015 compared to 16.8 per cent in the previous month driven by the expansion of credit extended to both private and public sectors by the banking system. Gross official reserves, which stood at US dollars 6.
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8 billion at end September 2015, are estimated to have strengthened to around US dollars 8.0 billion by 03 November 2015 with the receipts from the ninth International Sovereign Bond issuance for US dollars 1.5 billion, the statement said. With regard to the external sector, the decline in expenditure on imports in September 2015 was greater than the decline in earnings from exports, narrowing the deficit in the trade account by 4.1 per cent to US dollars 733 million.

However, on a cumulative basis, trade deficit widened during the first nine months of the year by 3.8 per cent to US dollars 6,145 million, driven by the continued increase in non-oil imports.