CB keeps policy steady, sees room for lower lending rates

Saturday, 17 August 2013 00:00 - - {{hitsCtrl.values.hits}}

Central Bank is still dovish on monetary policy: Governor
Sri Lanka’s economic growth has not been up to potential: Governor
Central Bank still confident of 7.5% growth for 2013

Reuters: Sri Lanka’s Central Bank kept its key monetary policy rate unchanged on Friday, as expected, adding that with inflation expected to remain in single digits for the rest of the year, there was room for market lending rates to fall. The Central Bank of Sri Lanka kept its repurchase rate and reverse repurchase rates at 7% and 9% respectively – their lowest in more than a year. Although these key policy rates have fallen by 75 basis points since December, market lending rates have remained stubbornly high, which lenders attributed to heavy demand from loss-making State-owned enterprises and higher deposit rates. The Central Bank said in its monetary policy statement: “The reduction of lending rates on medium-to-long term credit facilities, thus far, has been inadequate.” Central Bank Governor Ajith Nivard Cabraal told Reuters: “We will be watching carefully to see whether that space is taken up by banks and financial institutions. “We are dovish. We think that there is a need to relax, because our inflation numbers are benign and our growth is not up to its potential. So we want to have better momentum, but at the same time the impact of the previous policy revisions we have done must also be felt by the market.” Lending rates at State-run Bank of Ceylon, the country’s largest lender, range from 13.6% to 31% depending on the nature of the loan, officials said. “It will take some time for banks to reduce lending rates as they have given higher rates for their deposits,” S. Palihawadana, the deputy general manager and chief dealer at Seylan Bank, told Reuters. Cabraal said the Central Bank still sees 2013 economic growth at 7.5%, much higher than the International Monetary Fund’s estimate of 6.3%. Growth in Sri Lanka’s $ 59 billion economy slowed to 6.4% last year from a record high of 8.2% in 2011. Annual inflation in July eased to a 15-month low of 6.1% from 6.8% in the previous month.

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