Sri Lanka Central Bank maintains policy interest rates at current levels

Dec 28, 2018 (LBO) – Monetary Board of the Central Bank has decided to maintain policy interest rates at their current levels with the broad aim of stabilizing inflation at mid-single-digit levels in the medium term to enable the economy to achieve its potential growth.

Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 8.00 percent and 9.00 percent, respectively.

Central Bank said the Board considered current and expected developments in the domestic economy and the domestic financial markets as well as the global economic environment.

“As per the available economic indicators and other economic developments, real GDP growth is likely to be low in the 4Q2018 as well, before picking up gradually in 2019,” the Board said.

“The continued low economic growth reemphasizes the need for implementing broad-based structural reforms without further delay.”

In spite of the increased cost of funds and tight liquidity conditions, the year-on-year growth of credit to the private sector has accelerated since September 2018.

Central Banks’s current projections show that inflation, on average, will remain below 5 percent in 2019 and stabilize in the range of 4-6 percent thereafter with appropriate policy adjustments.

“Although inflation remains subdued and economic growth remains below potential, the Monetary Board of the Central Bank was of the view that it is appropriate to continue the current monetary policy stance,”

“It will stabilize overall economic conditions and domestic financial markets in a context where there has been an uptick in private sector credit as well as continued pressure on external reserves.”

Sri Lankan rupee has depreciated by 15.9 percent against the US dollar thus far during 2018 up to 27 December with gross official reserves amounting to 7 billion dollars at end November 2018, providing an import cover of 3.7 months.