Oct 17, 2014 (LBO) - Sri Lanka's central bank held policy interest rates at 6.5 and 8.0 percent but said there is further room for banks to reduce lending rates, as inflation continued to be slow the Central Bank in its October monetary policy review.
“In nominal terms, most market interest rates are at historic lows, although there is further room for these rates to reduce in relation to the low inflation environment.” Central Bank said in a media release.
However in August credit extended to the private sector by commercial banks increased by 47.7 billion rupees indicating a turnaround in the behavior of bank credit.
The monetary authority says is expected that credit disbursements to the private sector from commercial banks would continue to grow given the continued growth in economic activity and the relatively low market interest rates.
The island inflation continued to remain in low single digit levels, as headline inflation on a year-on-year (Y-o-Y) basis remained unchanged at 3.5 percent in September 2014 while declining on an annual average basis to 4.2 per cent from 4.5 percent in the previous month.
Core inflation (Y-o-Y) meanwhile, decelerated to 3.7 percent in September 2014 from 3.9 per cent in August 2014.
The bank says the reduction of international energy prices and the improvements in the domestic electricity infrastructure have enabled the government to reduce domestic energy prices, and the benefits of these adjustments have now begun to reflect favorably on inflation.
Net credit to the government from the banking sector has increased by 60.9 billion rupees in the first eight months compared to the projected bank borrowing of 100 billion rupees for the year, and credit to public corporations has declined by 27.2 billion rupees during this period.
Reflecting increased foreign inflows to the government and the private sector, net foreign assets of the banking sector have increased by 289 billion rupees during the first eight months of the year, the bank said.
The growth of broad money which moderated in July 2014 to 11.9 per cent (y-o-y), accelerated to 12.3 per cent (y-o-y) in August 2014.
Central Bank says access to the Standing Deposit Facility (SDF) will remain rationalised with deposits of OMO participants under the SDF window exceeding three times being accepted at the lower rate of 5.00 per cent until further notice. In the meantime, OMO auctions will be conducted when necessary.
“In nominal terms, most market interest rates are at historic lows, although there is further room for these rates to reduce in relation to the low inflation environment.” Central Bank said in a media release.
However in August credit extended to the private sector by commercial banks increased by 47.7 billion rupees indicating a turnaround in the behavior of bank credit.
The monetary authority says is expected that credit disbursements to the private sector from commercial banks would continue to grow given the continued growth in economic activity and the relatively low market interest rates.
The island inflation continued to remain in low single digit levels, as headline inflation on a year-on-year (Y-o-Y) basis remained unchanged at 3.5 percent in September 2014 while declining on an annual average basis to 4.2 per cent from 4.5 percent in the previous month.
Core inflation (Y-o-Y) meanwhile, decelerated to 3.7 percent in September 2014 from 3.9 per cent in August 2014.
The bank says the reduction of international energy prices and the improvements in the domestic electricity infrastructure have enabled the government to reduce domestic energy prices, and the benefits of these adjustments have now begun to reflect favorably on inflation.
Net credit to the government from the banking sector has increased by 60.9 billion rupees in the first eight months compared to the projected bank borrowing of 100 billion rupees for the year, and credit to public corporations has declined by 27.2 billion rupees during this period.
Reflecting increased foreign inflows to the government and the private sector, net foreign assets of the banking sector have increased by 289 billion rupees during the first eight months of the year, the bank said.
The growth of broad money which moderated in July 2014 to 11.9 per cent (y-o-y), accelerated to 12.3 per cent (y-o-y) in August 2014.
Central Bank says access to the Standing Deposit Facility (SDF) will remain rationalised with deposits of OMO participants under the SDF window exceeding three times being accepted at the lower rate of 5.00 per cent until further notice. In the meantime, OMO auctions will be conducted when necessary.
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