Sri Lanka central bank holds policy rates steady

Aug 18, 2009 (LBO) – Sri Lanka’s central bank held policy rates steady at 11.00 percent for the second straight month saying market interest rates were falling, inflation is bottoming out but expected to remain at single digits in 2009. “As in other parts of the world, in Sri Lanka too, inflation is expected to rise moderately during the second half of the year 2009 along with the base effects stemming from the sharp price increases last year dissipating gradually,” the Central Bank said in its August monetary policy statement.

“Nevertheless, inflation on a year-on-year basis, is expected to remain at single digit levels throughout this year.”

The central bank has controlled inflation with the unadjusted 12-month inflation measured by the revised Colombo consumers’ price index increasing to 1.1 percent in July after falling to 0.9 percent in June.

The central bank has cut its main signal rate from a high of 19.0 percent to 11.0 percent so far in 2009.

Market Yields

The monetary authority said yields of Treasury bills have fallen 675 to 715 basis points and overnight rates have also fallen by 500 to 600 basis points. The central bank’s repo rate, at which excess reserves are deposited by banks, is 8.50 pe