SRR increase yields results with excess liquidity dropping to Rs.42bn
November private credit slows to Rs.91bn from a record Rs.158bn in October
Gross official reserves estimated at US $ 7.3bn at end-2015
Foreign remittances decline 0.5% in 2015
Rupee depreciated by 9% in 2015 seen appreciating marginally
The Monetary Board of the Central Bank yesterday decided to keep the current policy rates unchanged with its last monetary action mopping up some excess liquidity in the domestic money market and still being transmitted to the macroeconomy.
“… the Monetary Board observed that the policy adjustments made on the monetary and external fronts are still being transmitted gradually to the macroeconomy,” the Central Bank said.
The Central Bank increased the Statutory Reserve Ratio (SRR) applicable on all rupee deposits of commercial banks by 150 basis points to 7.5 percent with effect from January 16 to curb excessive credit creation and resultant demand pressures on inflation.
The Central Bank said following this monetary action, the excess liquidity, which averaged around Rs.90 billion in December 2015 and in the first two weeks of January 2016, declined to around Rs.42 billion.
“The increase in SRR also induced an upward adjustment in market interest rates, and the growth of credit extended to the private sector by commercial banks is expected to decelerate in the period ahead, albeit with a time lag,” the Central Bank said.
Private credit also significantly slowed down in November to Rs.91.2 billion from Rs.158 billion in October, the highest monthly credit growth recorded in 2015. The cumulative private sector credit in the first 11 months of 2015 amounted to Rs.647.7 billion.
The Central Bank said in November 2015, the net foreign assets of the banking sector improved with the receipt of the proceeds of the international sovereign bond of US $ 1.5 billion issued on October 27, 2015.
The bond proceeds helped to reduce credit obtained by the government from the banking sector during November.
The Central Bank said the credit obtained by public corporations also declined. In spite of the high growth of broad money, the Central Bank said inflation remained subdued supported by low international commodity prices and broadly favourable domestic supply conditions.
The headline inflation decelerated to 2.8 percent, on a year-on-year basis, in December 2015, from 3.1 percent in November 2015. On a cumulative basis, the trade deficit expanded marginally by one percent to US $ 7,566 million during the first 11 months of the year.
Earnings from tourism are estimated to have increased by 17.8 percent during 2015, although workers’ remittances declined by 0.5 percent during the year, mainly reflecting a decline of receipts from the Middle East.
Gross official reserves were estimated at US $ 7.3 billion by end-2015.
The Central Bank said the Sri Lanka rupee, which depreciated by 9 percent against the US dollar in 2015, recorded a marginal appreciation thus far