Sri Lanka’s monetary board yesterday decided to keep the key policy rates on hold for September, unchanged during the last four months. Hence both the repurchase and the reverse repurchase rate will be maintained at current levels of 7.00 percent and 9.00 percent respectively.
Speaking on the monetary stance, the Central Bank Governor Ajith Nivard Cabraal told Bloomberg TV that the strong growth in the economy had prompted them to keep the policy rates steady.
“We have seen some strong growth coming back in to the economy perhaps because of the moves we made in the past prompting us to keep the rates steady and to ensure that the momentum is allowed to take place without any further changes right now,” he said.
However Cabraal told in July that the CB might cut short-term interest rates again in September or October if inflation continues to fall as expected.
“We are seeing funds flowing. The recent bond issue done by the National Savings Bank is a good indicator of the interest people have in Sri Lanka. So this has prompted us to maintain rates and probably watch for the next month or so to see whether any further impetus needs to achieve a growth of 7.5 percent. But right now we believe we are on track to achieve that,” he further said.
Sri Lanka’s economy grew by 6.8 percent in 2Q accelerating from 6.0 percent growth in 1Q. Inflation has also hovered around the mid-single digit levels (6.3 percent in August) during the recent past, easing from 9.8 percent in February this year.
The monetary board releasing the September monetary policy review attributed some of the recent volatility in the domestic exchange rate market to the likely tapering of stimulus in US, which affected emerging market currencies the most.
“We are watching the rupee very closely and the growth stimulus while maintaining inflation,” Cabraal said.
The CB further expects the recently issued US $ 750 million NSB bond would help support the savings –investment gap and targets a gross official reserve of Rs.7.0 billion by the end of this year.