CB Chief says no need to adjust policy rates

Tuesday, 23 October 2012 00:44 - - {{hitsCtrl.values.hits}}

By Shihar Aneez

Reuters: The Central Bank sees no need to change its policy rates in the near future and it has reduced credit growth to the desired level, Governor Ajith Nivard Cabraal said.

“Our overall policies are working in the way we had projected and wanted it to work,” Cabraal told Reuters on Monday. “So I think there is no need for us to make any further adjustments in the near future.”

Cabraal was speaking ahead of the Monetary Board’s October meeting, on Monday, to set policy rates. The bank will announce its monetary policy stance at 0200 GMT today.

Sri Lanka raised rates twice in the first four months of the year to nearly three-year highs and imposed tough credit controls and a flexible exchange rate to deal with trade and balance-of-payments deficits from 2011.

In February, the Central Bank limited credit growth to a maximum of 23 per cent in 2012 from 35 percent last year. In 2011, the policy of a defended rupee and lower interest rates fuelled cheap credit and a huge import bill, resulting in a record trade gap.

“Credit growth has come down to the level that we had wanted. Our view is it will be resting in that exact spot we had projected,” Cabraal said, without giving data on recent credit growth.

Cabraal also said the Central Bank, which is concerned about future inflationary pressures, does not need to cut policy rates at the moment.

Keeping the rate unchanged “seems to be appropriate,” he said adding that the Central Bank is looking at 8-8.5 per cent annual inflation by end-2012.

The country’s economic growth is projected to slow to 6.8 per cent from last year’s record 8.3 per cent due to tough policy measures and conditions in Europe, Sri Lanka’s top export destination.

Early this year, the Central Bank had estimated 8.5 per cent growth in 2013, but Cabraal said this is too ambitious.

“The global conditions are such that it would be somewhat tough to pitch for a growth of that nature. But certainly above 7.5 per cent is something that we could safely work towards,” Cabraal said.

He also predicted that the rupee, which has fallen 14.8 per cent since a three per cent devaluation last November, will appreciate and settle around 125 per US dollar as expected earlier due to expected inflows. On Monday, it was trading around 129.75 to the US dollar.

“We are seeing some fresh inflows due to come in to the stock market, property market, and FDI,” he said without elaborating on the numbers.

The Governor said he believes it is “pretty realistic” to think that the rupee could settle around 125 to the dollar.