Sri Lanka’s central bank says liquidity limits are working

April 10, 2007 (LBO) – Sri Lanka’s tight quantity targeting regime is paying off, and the central bank said Monday it would continue with the ‘current monetary policy stance’. The next monetary policy statement would be released on May 16. The February statement was brought forward by one day.

Updated Perhaps fittingly, the entire April monetary statement made no reference to its policy overnight discount rate – 12.0 percent reverse repurchase rate – which had largely become irrelevant with short-term inter-bank rates now hovering around 18 to 30 percent.

Since January the bank has been on a quantity targeting track, with specific limits on reserve money growth, restriction on commercial bank access to its discount window and a tolerance of very high overnight rates of even 50 percent.

Call rates edged up to 40 percent Tuesday and market repos were going at around 30 percent, dealers said.

“The tight monetary policy measures pursued by the Central Bank were instrumental in the reserve money being well within the first quarter reserve money ceiling,” the Central Bank said.

“Growth in broad money also decelerated to the range of 16.0 – 16.5 per