Central Bank maintains interest rates, current monetary policy appropriate

The Central Bank has decided to maintain current policy interest rates as its Monetary Board is of the view that the current monetary policy stance is appropriate. Following its monthly Monetary Board meeting held on Monday, the Central Bank said the repurchase rate would remain at 7.50 percent while the reverse repurchase rate remains at 9.50 percent.

The current tight policy measures adopted in early 2012, to moderate private sector credit expansion proved effective, the Central Bank said in its Monetary Policy Review for February 2013. The tight policy measures resulted in a marked decline in non-oil imports, narrowing the deficit in the trade account in 2012.

Private sector credit growth declined to 17.6 percent by end 2012, from 34.5 percent at end 2011, although the government and public corporations borrowing from banks remained at 21.7 percent at end 2012.

Since the objectives of the tight measures have been realized, the Central Bank had relaxed the policies somewhat from December 2012, to boost the economic growth.

The Bank expects the reduction in policy interest rates and the expiration of the credit ceiling in December 2012, to support the economy to move towards its full potential in 2013.

While inflation remained at single digit levels over the past four years, it rose to 9.8 percent year-on-year, in January 2013.

The Central Bank attributed the rise in inflation to the adverse weather conditions affecting vegetable prices. The Bank expects the inflation to remain the same for February and decline later.

priu.gov.lk