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Apr 22, 2014 (LBO) - Sri Lanka's central bank held policy rates unchanged in April saying reduced central government and state enterprise borrowings has created conditions for private credit to pick up.
The central bank held the rate at which money is drained from banks at 6.5 percent and the rate at which cash is injected at 8.0 percent.
With excess liquidity in markets and money being drained daily amid weaker credit, the 6.5 percent standing repo rate is now active and overnight risk free bank rates is 6.50 percent and the un-backed rate at 6.90 percent.
The Central Bank said the rates were appropriate with inflation at 4.2 percent in March, unchanged from 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.
Sri Lanka's inflation has been low with credit weak and excess liquidity being drained by the Central Bank, with some analysts saying inflation would be lower if the exchange rate was allowed to appreciate.
The government had borrowed 43.3 billion rupees from the banking system in the first two months of the year but overdrafts at state banks had been repaid with proceeds of a billion US dollar bond.
State energy enterprises had also repaid loans from state banks.
"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 Central 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."
Sri Lanka raised interests sharply in 2012 to ward of a balance of payments crisis triggered by heavy borrowings by state enterprises from state banks.
http://www.lankabusinessonline.com/news/sri-lanka-rates-unchanged;-lower-state-borrowings-to-boost-credit:-central-bank/764128960
The central bank held the rate at which money is drained from banks at 6.5 percent and the rate at which cash is injected at 8.0 percent.
With excess liquidity in markets and money being drained daily amid weaker credit, the 6.5 percent standing repo rate is now active and overnight risk free bank rates is 6.50 percent and the un-backed rate at 6.90 percent.
The Central Bank said the rates were appropriate with inflation at 4.2 percent in March, unchanged from 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.
Sri Lanka's inflation has been low with credit weak and excess liquidity being drained by the Central Bank, with some analysts saying inflation would be lower if the exchange rate was allowed to appreciate.
The government had borrowed 43.3 billion rupees from the banking system in the first two months of the year but overdrafts at state banks had been repaid with proceeds of a billion US dollar bond.
State energy enterprises had also repaid loans from state banks.
"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 Central 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."
Sri Lanka raised interests sharply in 2012 to ward of a balance of payments crisis triggered by heavy borrowings by state enterprises from state banks.
http://www.lankabusinessonline.com/news/sri-lanka-rates-unchanged;-lower-state-borrowings-to-boost-credit:-central-bank/764128960
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