Economy

CB keeps policy rates unchanged

23 Apr 2014 - {{hitsCtrl.values.hits}}

The Monetary Board of Central Bank yesterday decided to keep the policy rates unchanged with government and state-corporations borrowing less, which in return has created a favourable environment for private credit to pick up, the Central Bank said.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank have been kept unchanged at their current levels of 6.50 percent and 8.00 percent respectively.

The Central Bank said net credit to the government for the first two months of the year amounted to Rs.43.3 billion, with the government utilising the proceeds of the sovereign bond issuance in January 2014 to reduce its overdraft balances with the state banks.

At the same time, Central Bank said that credit obtained by public corporations declined further in February due to net repayments by the Ceylon Petroleum Corporation and Ceylon Electricity Board during the month.

“Continued fiscal consolidation, together with the sovereign bond issuance that took place in April 2014, is expected to ease public sector’s reliance on bank financing in the coming months.

“The resulting release of funds for private investments bolstered by sufficient market liquidity levels would provide the necessary stimulus to strengthen private sector activity and in turn, as expected, expand credit growth from the second quarter onwards,” the Central Bank noted.

However, credit to the private sector grew by a modest 4.4 percent on a Year-on-Year basis in February 2014, from 5.2 percent recorded in the previous month.

The Central Bank also said 4.2 percent inflation in March, unchanged from February and 3.4 percent core inflation, slightly up from 3.1 percent in February, allowed the policy rates to remain at the current levels.

“Looking ahead, although some price pressures may be felt due to supply disruptions brought by drought conditions, inflation is expected to remain at mid single digits throughout the year supported by favourable inflation expectations, and subdued demand conditions,” the Central Bank noted.

In the external sector, inflows on account of workers’ remittances recorded a significant increase in February 2014 while earnings from tourism also increased during the first quarter 2014.

Gross official reserves are estimated to be around US $ 8 billion as at end February 2014, which is equivalent to 5.3 months of imports.

The reserve levels are expected to further improve with proceeds of US $ 500 million sovereign bond issuance in April 2014.

The growth of broad money supply (M2b) decelerated to 14.7 percent in February 2014, its lowest level in 38 months, while reserve money on a quarterly average basis remained within projected levels in the first quarter.

Economy

CB keeps policy rates unchanged

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