COLOMBO, Apr 22 (Xinhua): Sri Lanka's central bank kept its rates unchanged on low inflation and a conducive environment for private sector credit to pick up, a statement said here on Tuesday.
Releasing its Monetary Policy statement, the central bank has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the bank unchanged at their current levels of 6.50 per cent and 8.00 per cent respectively.
The central bank said the rates were appropriate with inflation at 4.2 per cent in March, up slightly from 3.1 per cent in February.
"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 April monetary policy statement said.
Key foreign exchange earnings crops such as tea has been severely affected by the drought that hit Sri Lanka at the start of the year. Rice, Sri Lanka's staple food, has also been hit by the drought but the government slashed import taxes earlier this month to meet supply and prevent and increase in prices.
However, the central bank believes it will not have a debilitating effect on the 7.8 per cent growth rate targeted for 2014.
Since the start of the year the government has issued about US$1.5 billion in bonds with the latest tranche of $500 million gathered in April. This is expected to ease pressure on private sector credit.
"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 bank said.
"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."
