Sri Lanka has decided to keep its key policy rates unchanged in its latest policy review meeting held yesterday.
Accordingly, the Central Bank of Sri Lanka announced, that it will maintain the Repurchase rate at 7.75% and the Reverse Repurchase rate at 9.75%.
Following the decision, the Central Bank said, owing to several policy measures that are already in place to contain the demand side pressures arising from monetary expansion, the growth in broad money decelerated to 20.9% in May 2012 from 22.9% in April 2012.
It also says, the growth of credit extended to the private sector by commercial banks also has reduced from its peak of 35.2% in March 2012 to 33.5% in May 2012.
“Consequently, in the first 5 months of the year, credit extended to the private sector grew only by 10.5 per cent” the Bank said.
The Bank also says, the increase in inflation in June 2012 was mainly due to the lower base in June 2011 and the impact of the prevailing drought conditions on domestic fresh food prices and the recent revisions to administratively determined prices.
Central Bank says according to the provision data for the first five months of this year, the growth of import expenditure is shrinkging year on year, which it hopes will help narrow the trade deficit.
“With weaker global demand, most international commodity prices are also on a declining trend, which should, on a net basis, further ease pressure on the country’s imports this year, although the continuing sluggish global economic recovery may affect export earnings as well” added the Bank in its latest monetary policy review.
According to the Bank, Sri Lanka has qualified to receive the final tranche of the ongoing IMF SBA facility, which it says will help strengthen the external position of the country in the coming months.
This, CBSL says will enhance the gross official reserves which stood at US$ 5.81 billion as at 31st May 2012, which is equivalent to 3.4 months of imports.
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