The Central Bank has decided to maintain current policy interest rates as its Monetary Board is of the view that the current monetary policy stance is appropriate amid the low inflation environment.
Following its monthly Monetary Board meeting held Thursday, August 15, the Central Bank said today the Repurchase rate would remain at 7.00 percent while the Reverse Repurchase rate remains at 9.00 percent.
The Board has also noted that there is more space for market lending rates to fall further, and that the reduction of lending rates on medium to long term credit facilities has been inadequate to reflect the current monetary policy stance and the low inflation environment, the Central Bank said in its monetary policy review released Friday.
The Bank says prudent demand management policies along with favorable supply conditions have resulted in a continued low inflation environment in Sri Lanka.
The inflation has remained in single digits levels for 4½ years with headline inflation for July 2013 easing to 6.1 percent and is expected to remain in single digits during the rest of this year and next year.
Merchandise exports in June 2013 have recorded a positive year-on-year growth after the decline observed in the past 15 months although imports have also increased in the month expanding the trade deficit. However, the cumulative trade deficit for the first six months of 2013 declined 7.1 percent.
Earnings from tourism and workers' remittances have continued to improve, while the financial inflows have been substantial in the first half of the year, the Central Bank said.
During the first six months of 2013, Foreign Direct Investment (FDI) inflows amounted to US$ 537.0 million, net inflows to the stock market to US$ 120.2 million, net inflows to the Government securities market to US$ 664.4 million and inflows to commercial banks US$ 664.3 million.
"Such inflows display that the foreign investor confidence on Sri Lanka has remained unchanged despite the volatility caused by global markets," the Bank said.
With the US economy and the Eurozone showing signs of economic recovery in the second quarter of the year, the Central Bank expects stronger performance of the external sector and domestic economic growth as a result.