Sri Lanka holds policy interest rates

ComBank MD S. Renganathan (Centre) introducing the app to CB Governor Indrajit Coomaraswamy in the presence of (from L) ComBank Manager - Card Centre Seevali Wickramasinghe, Head of Card Centre Thusitha Suraweera, Deputy GM – Marketing Hasrath Munasinghe, CB Assistant Governor Ananda Jayalath and CB Director - Payments & Settlements Dharmasri Kumaratunge

May 16, 2011 (LBO) – Sri Lanka’s central bank said it is holding policy rates steady as last month’s hike in the reserve ratio was effective in draining excess liquidity and inflation was likely to fall from next month. Inflation, as measured by the year-on-year change in Colombo Consumers’ Price
Index (CCPI) hit 9.8 percent in April 2011 compared to 8.6 percent in March.

The market is responding to the change in Statutory Reserve Ratio which absorbed Rs18bn from the banking system, the central bank said in its monetary policy statement.

On April 12, 2011 the central bank raised its reserve ratio, the amount of deposits that banks must hold at the monetary bank by 100 basis points to 8.0 percent to draw in excess liquidity and contain inflation.

The full central bank statement follows:

With the continuation of the momentum in the Industry and Services sectors led by trade related activity and tourism, as well as the continuous improvements in productivity, the growth in real GDP during the first quarter of 2011 was largely within targets, although there was a setback in the Agriculture sector.

Domestic supply conditions have recovered from the impact of floods in early 2011, and the