The Monetary Board of the Central Bank yesterday decided to maintain the policy rates unchanged for the month of June despite the private sector credit growing at a slower pace of 3.3 percent in April, compared to 4.3 percent in March.
Accordingly, t he Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank will remain at their current levels of 6.5 percent and 8 percent, respectively.
Sri Lanka’s gross domestic product (GDP) grew 7.6 percent in the first quarter of 2014, driven by improved performance of industry and services sectors, compared with 6.1 percent growth in the corresponding period of the previous year.
Meanwhile, headline inflation slowed to 3.2 percent in May while core inflation also decelerated to 3.3 percent. The Central Bank expects the inflation to remain benign in mid-single digits during the year.
Broad money recorded a year-on-year growth of 13.2 percent in April 2014, helped by the improvement in net foreign assets of the banking system, the Central Bank said.
Net credit to the government contracted by around Rs.6.8 billion during the month, while credit to public corporations recorded only a marginal increase.
“In spite of the relaxed monetary policy environment since December 2012, the continued moderation of growth of credit to the private sector seems to reflect the customary transmission lag of around 18 months and the contraction in gold-backed loans since April 2013,” the Central Bank noted.
However, with the realisation of the effects of the eased monetary policy stance, the Central Bank expects a turnaround in credit growth in the second half of the year.
“The implementation of the credit guarantee scheme in relation to pawning advances is also expected to further stimulate private sector credit growth,” the bank said.