Tuesday Apr 23, 2024
Tuesday Apr 23, 2024
Friday, 15 October 2021 00:27 - - {{hitsCtrl.values.hits}}
The Monetary Board of the Central Bank, at its meeting held on 13 October, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at their current levels of 5% and 6%, respectively.
CBSL said the Board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts.
“The Board reiterated its commitment to maintaining inflation at the targeted levels over the medium-term with appropriate measures, while supporting the economy to reach its potential in the period ahead,” CBSL said in a statement.
In response to the tightening of monetary policy in August, CBSL said most market deposit and lending rates have adjusted upwards. Further, yields on Government securities witnessed a sharp upward adjustment with the removal of maximum yield rates for acceptance at primary auctions.
It said following these upward adjustments, greater stability is expected in market interest rates in the period ahead. Reflecting the increased demand for credit amidst the low interest rate environment, credit extended to the private sector expanded as envisaged during the eight months ending August.
“The momentum of credit expansion is expected to continue during the remainder of the year, with the recovery in economic activity and continued efforts to channel credit flows to productive and needy sectors of the economy,” CBSL said.
Credit obtained by the public sector from the banking system, particularly net credit to the Government, also increased notably during the eight months ending August. With increased domestic credit, the growth of broad money (M2b) continued to remain elevated.
CBSL said inflation accelerated in recent months due to high food inflation and some acceleration in non-food inflation. The surge in global commodity prices prompted the Government to remove maximum retail prices on several essential commodities. Along with resultant upward adjustments in other market prices, this is likely to cause headline inflation to deviate somewhat from the targeted levels in the near-term.
“While such supply-side developments in the near-term do not warrant monetary policy tightening, measures already taken by the Central Bank in relation to interest rates and market liquidity would help stabilise demand pressures over the medium-term,” CBSL said.
In consideration of the current and expected macroeconomic developments, CBSL said the Monetary Board was of the view that the current level of policy interest rates is appropriate.
“The Central Bank will continue to monitor domestic and global macroeconomic and financial market developments and stand ready to take appropriate measures, as and when necessary, with the aim of maintaining inflation in the desired range under the flexible inflation targeting framework in the medium-term, while supporting and sustaining the economic recovery,” the statement said.
