Nov 14, Colombo: Sri Lanka's Central Bank today said it has decided to increase both the deposit rate and the lending rate further tightening the monetary policy as a pre-emptive policy measure to control inflationary pressures for the economy to reach its potential.
The Monetary Board of the Central Bank in a statement issued today said, at its meeting held on 13 November 2018, it has decided to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of commercial banks by 1.50 percentage points to 6.00 percent.
In order to neutralize the impact of this reduction and maintain its neutral monetary policy stance, the Monetary Board has decided to increase the Standing Deposit Facility Rate (SDFR) of the Central Bank by 75 basis points to 8.00 percent and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points to 9.00 percent.
The Board said it arrived at this decision following a careful analysis of current and expected developments in the domestic and global economy and the domestic financial market, with the broad aim of stabilizing inflation at mid-single digit levels in the medium term to enable the economy to reach its potential.
Headline inflation decelerated below the desired mid-single digit levels, largely driven by the decline in volatile food prices. The Bank expects the headline inflation is projected to remain in low single digit levels during the remainder of the year and is expected to be maintained in the targeted range of 4 - 6 per cent during 2019 and thereafter with appropriate policy adjustments.
The expansion in import expenditure continued to outpace the growth in export earnings during the first nine months of 2018 leading to a wider trade deficit than in the corresponding period in the previous year. However, a slowdown in import expenditure is expected in the period ahead in response to the recent measures adopted as well as the depreciation of the rupee against major currencies.
As per the available economic indicators, real GDP growth is likely to remain subdued and below the envisaged levels in 2018, the Central Bank projected.