Sri Lanka maintains policy interest rates, GDP within targets

May 16, Colombo: The Central Bank of Sri Lanka has decided to maintain policy interest rates at their current levels, the Monetary Policy Review for the month of May said.

In the Monetary Policy Review released today following the Monday’s Monetary Board meeting the Central Bank said the current Repurchase rate and the Reverse Repurchase rate would remain at 7.00 percent and 8.50 percent, respectively.

The Bank said that with the gains in the Industry and Services sectors led by trade related activity and tourism and the continuous improvements in productivity, the growth in real GDP during the first quarter of 2011 was largely within targets despite the losses in Agriculture sector.

The Bank underscored that the agriculture sector has recovered from the devastating floods earlier this year and the current weather conditions are favourable for agricultural activity and hydropower generation.

It noted that international commodity prices in general have declined although prices of many commodities still remain high and the crude oil price has been stabilized for the time being.

The Bank predicted the trade deficit to widen in 2011 with the high anticipated international commodity prices although the added revenues from the tourism industry, workers’ remittances, and higher capital inflows would impact the overall balance of payments positively.

Government revenue during the first quarter in the year has increased by 19.5 percent compared to the same period in 2010. The incline has been attributed to the recent hike in excise duties on vehicle imports.

The Central Bank said the market is responding to the change in Statutory Reserve Ratio (SRR) implemented on April 29, absorbing Rs. 18 billion from the banking system.

Considering the positive trends, the Monetary Board, at its meeting held on Monday, May 16, has decided to maintain policy interest rates of the Central Bank at their current levels, the Bank announced.

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