CB keeps October policy rates steady

21 October 2015 02:49 am

August private credit growth highest in 34 months; monetary policy lag seen ending

The monetary board of the Central Bank yesterday left the key policy rates steady for the six consecutive month in October amid rising core inflation and strong pick up in private credit as the lag effect in Sri Lanka’s monetary policy transition is seen gradually disappearing.  
The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) was left unchanged at 6 percent and 7.5 percent respectively while the Statutory Reserve Ratio (SRR) remained at 6 percent.
The Central Bank keeps the interest rates artificially low through money printing that generates excess demand in the domestic economy and imports over and above the foreign inflows.
While the October policy decision is largely expected, the monetary board continued to express a cautious tone as they concluded by saying, “the Central Bank will continue to monitor the developments in aggregate demand conditions of the economy to ensure sustained economic and price stability”.
Probably referring to the recent step taken towards placing caps on lending against certain asset classes, the Central Bank said there were indications seen that these measures are beginning to take effect.
The Central Bank on September 14 issued directions to the banks and finance companies imposing a 70 percent cap on lending against the vehicles to curb credit flows in to this segment and to control the vehicle imports.