Apr 09, 2013 (LBO) – Sri Lanka’s interest rates and inflation would fall in the coming months in a virtuous cycle, helped also by market pricing energy which will lower credit pressure, Central Bank Governor Nivard Cabraal said. Sri Lanka’s inflation rose 7.5 percent in the 12 months to March 2013 but eased from 9.2 percent in December, as the exchange rate fell from 110 to 134 to the US dollar in the first half of 2012 under pressure from sterilized foreign exchange sales.
Despite a cut in policy rates in December which raised some concerns about the credibility of central bank policy, lending rates have remained high, partly due to state borrowings from the banking system.
“The policy rates were revised last December,” Cabraal told reporters after releasing the bank’s annual report on the economy for 2012.
“We haven’t seen it happening as fast as we would like or with the intensity that it should have taken place. Even though the transmission is sometimes weak, we believe the trend is clear.”
Cabraal said falling inflation will also have a positive effect on interest rates.
“Hopefully that trend would continue into the next few months as well, which would give us a situatio