Sri Lanka’s central bank keeps rates stable, but remains cautious about inflation

MUMBAI: Sri Lanka’s central bank kept interest rates stable on Thursday, October 14, as it sought to continue supporting the economic recovery after the rate hike in August, but said it would take action necessary to contain inflationary pressures.

The Central Bank of Sri Lanka (CBSL) left the permanent deposit facility rate and the permanent lending facility rate unchanged at 5 and 6 percent, respectively.

Both rates were raised by 50 basis points each in August to contain pressure on construction prices.

Inflation in Sri Lanka has accelerated in recent months due to high food prices, but consumer prices eased in September to just fall within the central bank’s 4-6% target range .

CBSL said a global commodity rally is likely to fuel price pressures in the near term, prompting the government to remove the cap on retail commodity prices.

“With (the) resulting upward adjustments to other market prices, this is likely to cause headline inflation to deviate somewhat from target levels in the near term,” CBSL said in its statement.

“Although such short-term supply side developments do not justify a tightening of monetary policy, the measures already taken by the central bank on interest rates and market liquidity would help to stabilize the pressures of the market. medium-term demand, “he added.

The CBSL also left the reserve requirement ratio unchanged at 4 percent after raising it by 200 basis points in its last policy in August.

The central bank said the outlook for tourism has improved as governments broadly relax travel restrictions imposed to contain the COVID-19 pandemic. The CBSL also said it expected a rebound in workers’ remittances after moderation in recent months.

“The Central Bank will continue to monitor domestic and global macroeconomic and financial developments,” CBSL said.

It is “ready to take appropriate measures, if necessary, with the aim of keeping inflation within the desired range as part of flexible inflation targeting over the medium term, while supporting and supporting the economic recovery”, the central bank added.

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