Sri Lanka cenbank holds policy, pledges low rates amid recovery

Credit: REUTERS/DINUKA LIYANAWATTE

Sri Lanka's central bank left its key interest rates unchanged on Thursday and re-affirmed its commitment to maintain a low interest rate structure until the economy shows signs of a sustained recovery.

By Swati Bhat

MUMBAI, March 4 (Reuters) - Sri Lanka's central bank left its key interest rates unchanged on Thursday and re-affirmed its commitment to maintain a low interest rate structure until the economy shows signs of a sustained recovery.

It said the monetary board noted the recent slowdown in credit disbursements to the private sector and inadequate lending to productive sectors of the economy.

It stressed the need for the financial system to lend to productive sectors in order to support the ongoing recovery of domestic production.

The Central Bank of Sri Lanka (CBSL) kept the standing deposit facility rate and the standing lending facility rate at 4.50% and 5.50%, respectively. The statutory reserve ratio was also left unchanged at 2%.

The central bank is closely monitoring the trade deficit, which narrowed by $2 billion in 2020 due to the notable decline in imports and is expected to remain compressed in 2021, the statement said.

In February, central bank chief W.D. Lakshman said Sri Lanka's current account deficit fell to about $1 billion to $1.2 billion in 2020 from about $1.8 billion in 2019 and said a current account surplus was "realistic" this year.

He had also said the country is committed to meeting its debt servicing obligations and is in talks with some foreign governments and multilateral institutions on its finances.

"In spite of adverse speculation, all debt service obligations of the government have been duly met thus far in 2021, and the government remains committed to maintaining its impeccable debt service record in the future as well," the bank's statement said.

The central bank said it expects inflation to remain subdued in 2021 as both headline and core inflation remains low due to weak demand and is expected to stay in the targeted 4%-6% medium-term range.

(Additional reporting by Sethuraman N R in Bengaluru; Editing by Tom Hogue and Sam Holmes)

((swati.bhat@thomsonreuters.com; twitter.com/swatibhat22; +91-22-68414381; Reuters Messaging: swati.bhat.thomsonreuters.com@reuters.net))

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