CB keeps policy rates on hold

The Monetary Board of the Central Bank yesterday decided to keep the policy rates unchanged amidst slower credit growth and deceleration of exports due to slow recovery of the global economy.

Accordingly, the Central Bank will keep the policy rates unmoved; Repurchase rate at 7.75 percent and Reverse Repurchase rate at 9.75 percent.

The Central Bank said that the tight monetary policy they have adopted has been effective in cutting private sector credit growth. As the bank pointed out, the overall private sector credit growth moderated substantially to 28.7 percent Year-on-Year in August, falling below 30 percent for the first time since March 2011.

"In absolute terms, the expansion of credit in August was Rs. 14 billion compared to the average monthly increase of Rs. 51.8 billion in the first quarter of 2012," the Central Bank noted.

However, despite the slowdown of credit to the private sector, broad money growth in August was higher than the previous month, reflecting higher public sector borrowings.

The Central Bank also said that growth of Lankan exports has decelerated during the last six months moderately while demand management measures introduced in early 2012 have resulted in imports falling substantially, resulting improvements in the country's trade balance.

"With the resultant improvement in the trade balance, together with other inflows, the balance  of payments  has  recorded a surplus of US dollars  305.9 million  by August, and helped to raise the current level of official reserves to US dollars 7 billion, which is  equivalent to around 4.3 months of imports," the Central Bank said.