Sri Lanka maintains policy rates, current monetary policy stance is appropriate




  • Sri Lanka’s Central Bank releasing the monetary policy review on Thursday said considering developments in the domestic and international macroeconomic environment it has decided to maintain current policy interest rates as the current monetary policy stance is appropriate.

    Accordingly, the Monetary Board has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 7.25 percent and 8.75 percent, respectively while the Statutory Reserve Ratio remains at 7.50 percent.

    Releasing the policy stance, the Central Bank said the decision of the Monetary Board is consistent with the objective of maintaining inflation at mid-single digit levels over the medium term and thereby facilitating a sustainable growth trajectory.

    The Bank said the export earnings reached an all-time high of around US dollars 11.4 billion in 2017, largely supported by the sustained increase in export earnings stemming from the restoration of the GSP+ facility by the European Union, favorable prices for key commodities in the international market and the flexible exchange rate policy maintained by the Central Bank.

    However, drought related imports and increased gold imports caused an expansion in the trade deficit.

    Positive momentum in services exports, including the tourism sector, also continued while there was a moderation in workers remittances.

    By end 2017, both the growth of broad money supply and the growth of credit extended to the private sector by commercial banks moderated to desired levels.

    Direct investment inflows are also estimated to have increased considerably in 2017, partly due to the receipt of divestment proceeds from the lease of the Hambantota port.

    Reflecting these developments, gross official reserves stood at US dollars 7.7 billion at end January 2018, while the rupee depreciated by 0.9 percent against the US dollar so far during 2018.

    Meanwhile, with the considerable slowdown in food inflation, Colombo inflation declined sharply in January 2018 while national inflation is also expected to decline in January 2018. The Central Bank expects both headline and core inflation will stabilize in the desired mid-single digit levels during the remainder of 2018.

    On the fiscal front, available indicators suggest that the government has been able to record a marginal surplus in the primary fiscal balance in 2017 after several decades.

    However, the overall fiscal performance is expected to have deviated from the envisaged path, mainly due to increased expenditure on flood and drought related relief measures and some slippages in revenue collection.

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