Apr 16, 2013 (LBO) – Sri Lanka held policy rates steady amid heavy demand for bank credit from the state but expected economic activity to pick up after state borrowing reduce helped by an electricity tariff hike. “Inflation is expected to remain at these benign levels supported by prudent demand management policies, although the proposed revisions to administered prices are likely to exert some upward pressure on price levels,” the Central Bank said.
“Monetary policy measures taken so far indicate that expected results are being realised, providing reasonable stimulus for a higher economic growth.
“At the same time, further deceleration of demand driven inflation on a sustainable basis would provide space for further easing of monetary policy.”
The Central Bank in its April monetary policy review kept policy rates at 7.5 percent to 9.5 percent saying heavy state borrowing from the banking system was still crowding out private sector borrowings.
In February 36.7 billion rupees had been borrowed from the banking system. Private businesses had also borrowed 18.7 billion rupees.
A slowing economy and reduced imports had hit government revenues in the wake of a balance of payments crisis, tri