Sri Lanka maintains policy rates to stabilize inflation at mid-single digit levels while supporting economic growth

Sri Lanka’s Central Bank releasing the monetary policy review on Thursday said given the current and expected developments in the domestic economy and the financial market, the Monetary Board was of the view that the continuation of the current monetary policy stance is appropriate.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 7.50 percent and 8.50 percent, respectively.

The Central Bank said the decision of the Monetary Board is consistent with the aim of maintaining inflation in the desired 4-6 percent range while supporting economic growth to reach it potential over the medium term.

The Sri Lankan economy grew at a relatively healthy rate of 3.7 percent (year-on-year) during the first quarter 2019, compared to 1.8 percent recorded in the fourth quarter, the Central Bank noted.

The continued growth of exports along with the sharp decline in imports led to a further contraction in the trade deficit during the first four months of 2019 while earnings from tourism suffered a setback following the April terror attacks, and inflows from workers’ remittances remained moderate.

Following the receipt of the proceeds of the International Sovereign Bonds, gross official reserves reached US dollars 8.9 billion by end June 2019, which provide an import cover of 5.1 months.

The contraction in the trade deficit and the receipt of the proceeds from the ISBs, along with the continuation of the Extended Fund Facility Programme with the International Monetary Fund (IMF-EFF) have eased the pressure on the exchange rate, resulting in the Sri Lankan rupee recording a cumulative appreciation of 4.1 percent against the US dollar thus far in 2019. This appreciation of the rupee has partially corrected its sharp depreciation observed in late 2018.

The Bank expects the weaker than originally envisaged growth in tourism and related services in the aftermath of the Easter Sunday attacks to affect economic growth in the near term, while subdued global growth is likely to hamper the medium term growth prospects of the economy.

“However, the ongoing recovery in the tourism sector as well as the performance of export provide some confidence of a speedy recovery, with the support of actions taken by the sectoral authorities, as well overall fiscal and monetary policies,” the Central Bank said in its report .

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *