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Sri Lanka central bank holds rates steady, but stays cautious on inflation

Sri Lanka central bank holds rates steady, but stays cautious on inflation

FILE PHOTO: People walk past the main entrance of the Sri Lanka's Central Bank in Colombo, Sri Lanka March 24, 2017. REUTERS/Dinuka Liyanawatte/File Photo

MUMBAI: Sri Lanka's central bank held interest rates steady on Thursday (Oct 14), as it sought to continue to support the economic recovery after increasing rates in August, but said it will take measures as needed to contain inflationary pressures.

The Central Bank of Sri Lanka (CBSL) left the standing deposit facility rate and the standing lending facility rate unchanged at 5 and 6 per cent, respectively.

Both rates were raised by 50 basis points each in August to contain building price pressures.

Inflation in Sri Lanka has accelerated in recent months due to high food prices, but consumer prices eased in September to stand just within the central bank's 4 to 6 per cent target range.

The CBSL said a global commodity rally would likely fuel price pressures in the near-term, having prompted the government to remove a cap on the retail prices of essential commodities.

"Along with (the) 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," CBSL said in its statement.

"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," it added.

CBSL also left the statutory reserve ratio unchanged at 4 per cent after having raised it by 200 basis points at its last policy in August.

The central bank said the outlook for tourism had improved as governments globally ease travel restrictions imposed to contain the COVID-19 pandemic. The CBSL also said it expected a rebound in workers' remittances after a moderation in recent months.

"The Central Bank will continue to monitor domestic and global macroeconomic and financial market developments," CBSL said.

It stands "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 central bank added.

Source: Reuters/vc

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