Lanka maintains policy rates to stabilize inflation

Sri Lanka's Central Bank releasing the monetary policy review on Friday said based on the current developments and outlook for key macroeconomic variables, the Monetary Board of the Central Bank was of the view that the continuation of the current monetary stance is appropriate.Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) remain at 7.25 percent and 8.50 percent, respectively, while the Statutory Reserve Ratio remains at 7.50 percent.

The Central Bank said after considering the current and expected domestic and global economic developments, the Monetary Board has decided to keep rates unchanged in consistent with its aim to stabilize inflation at mid-single digit levels in the medium term, thereby contributing to a favorable growth outlook for the Sri Lankan economy.

Both national and Colombo inflation remained at low single digit levels, in spite of the transient acceleration mainly arising from the upward revisions to prices of domestic petroleum products and other administratively determined prices. A gradual pickup in domestic economic growth is expected from the second quarter of 2018 and Inflation is expected to remain in mid-single digits in spite of the recent uptick.

"The economy is projected to reach its potential over the medium term benefiting from a competitive flexible exchange rate, a low inflation environment and a stronger policy framework to support exports and investment, amidst continued fiscal consolidation," the Central Bank said in its monetary policy review.

Although inflation is projected to remain at the higher end of the inflation target of 4 - 6 per cent in August as well, the onset of the harvest towards the end of the third quarter of 2018 is expected to lower inflation thereafter.

The gross official reserve position was estimated at US dollars 8.4 billion at end July 2018 compared to US dollars 8.0 billion recorded at end 2017. So far during the year, the Sri Lankan rupee has depreciated against the US dollar by 4.2 percent.