Sri Lanka’s Monetary Board held key interest rates unchanged on Monday citing low inflation, steady foreign remittances and earnings from tourism, Lanka Business Online reported.
The money authority said dollar inflows, which were expected to bolster foreign reserves, contributed to the decision.
The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank were held unchanged at 6% and 7.5% respectively.
“Going forward, the inflation outlook and expectations remain favourable for the remainder of the year, supported by improved domestic supply conditions and subdued global commodity prices,” the monetary board said, according to LBO.
Deflation was 0.2% in August, for a second consecutive month, on a year-on-year basis. Core inflation “which reflects the underlying price movements in the economy” increased to 3.9% in August from 3.5% in the previous month, on an year-on-year basis, it further said.
“Although some pressures in short term interest rates were observed along with declining liquidity levels in the domestic money market, most market interest rates continue to remain at low levels.”
Credit to the private sector by commercial banks grew 19.4% in June compared to the May figure of 17.6%, supported by low interest rates.
“The rapid increase in the imports of consumer durables including motor vehicles driven by credit available at low interest rates, among other things, has raised some concerns,” the monetary authority noted.
Despite a widening of the trade deficit, remittances from workers abroad and tourism earnings have supported the current account.
“The realisation of the remaining proceeds of the currency swap arrangement with the Reserve Bank of India (RBI) amounting of US dollars 1.1 billion and long term financial flows to the government, including the planned term loan of US dollars 500 million,” will support official reserves, the monetary board said.