Sri Lanka Central Bank maintains rates steadily

Sri Lanka’s central bank Wednesday announced that it would keep key policy rates steady  for a third straight month

The Central Bank of Sri Lanka after reviewing the progress of the developments under the monetary policy measures that have already been taken, the Monetary Board of the Central Bank has decided to maintain the Repurchase rate and the Reverse Repurchase rate unchanged at 7.75 per cent and 9.75 per cent, respectively.

The rupee has fallen nearly 18% against the US dollar since November, swelling the cost of its imports and further straining the country’s balance of payments.

The statement of the bank further reads; The provisional data shows that the growth of import expenditure has been shrinking sharply in the first five months of the year, thereby narrowing the trade deficit, compared to the high levels recorded in 2011. With weaker global demand, most international commodity prices are also on a declining trend, which should, on a net basis, further ease pressure on the country’s imports this year, although the continuing sluggish global economic recovery may affect export earnings as well.

On the external front, by end-June 2012, Sri Lanka achieved all targets set under the Stand-By Arrangement (SBA) facility with the International Monetary Fund, thereby qualifying to receive the final tranche under the SBA facility. Such disbursement, along with other expected significant foreign inflows are likely to strengthen the external position of the country in the coming months, and enhance the gross official reserves, which stood at US dollars 5,815 million as at 31st May 2012, which is equivalent to 3.4 months of imports.