Central Bank of Sri Lanka

August 16, 2013

As in June and July, Sri Lankan central bank interest rates were left unchanged after this month’s policy meeting, but a statement released by the authorities hints of a possible further cut in the future.  The repo rate and reverse repo rates were cut by 25 basis points last December and another 50 bps on May 10, 2013 to 7.0% and 9.0%, respectively.

The statement calls the present stance “appropriate,” citing continuing low inflation, a smaller trade deficit, and persistent capital inflows in spite of the market’s anticipation of Fed tapering.  At the same time, some concern is expressed about volatility in the foreign exchange values of key foreign markets and a thus far insufficient pass-through of central bank easing into bank lending rates.

The Board noted that there is yet more space for market lending rates to decline further, and that the reduction of lending rates on medium to long term credit facilities thus far, has been inadequate to reflect the current monetary policy stance and the low inflation environment.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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