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Financial News: Sri Lanka Holds Key Interest Rates

Sri Lanka Holds Key Interest Rates

02/07/2017 - 01:57:00 (RTTNews)

(RTTNews) - Sri Lanka's central bank decided to keep its key interest rates unchanged for the sixth straight meeting but signaled more tigthening in coming months.

The board of the Central Bank of Sri Lanka decided to maintain the Standing Deposit Facility Rate at 7.00 percent and the Standing Lending Facility Rate at 8.50 percent. The bank previously raised the rate by 50 basis points in July.

Policymakers observed that the economy is gradually responding to the stabilization measures adopted by the central bank and the government since late 2015.

Policymakers said a close monitoring of macroeconomic developments is necessary in the period ahead, with a view to adopting further corrective measures, if required.

Credit disbursement remained high at the end of 2016. However, the annual growth of monetary and credit aggregates are expected to moderate gradually during 2017, towards a level consistent with the anticipated real economic growth and mid-single digit inflation, the bank said.

Inflation is projected to remain in mid-single digit levels, on average during the year supported by appropriate supply side and demand management policies.

The bank noted that in the external sector, the cumulative trade deficit widened in the first eleven months of 2016, while earnings from tourism increased and workers' remittances increased during 2016.

Krystal Tan, an Asia economist at Capital Economics, said against a backdrop of rapid credit growth, rising inflation and a weakening currency, it is only a matter of time before the central bank is forced to resume its tightening cycle.

The economist expects the bank to raise policy rates by 100 basis points by end of 2017.

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