CB approaches X’mas with confidence
Central Bank yesterday sounded confident in the country meeting challenges of managing inflation and reducing interest rates as part of an overall stimulus in the economy ahead of the festive season.
This stance follows the October review of the monetary policy concluded yesterday.
In view of positive developments, the Monetary Board was of the view that the current levels of policy interest rates do not require any adjustment at the present time, since the policy measures adopted so far are still supportive of the desired outcome of gradual easing of the credit conditions in the country.
Short term scenario |
*Current inflation remaining at around 1% during the 4 months up to Sept. will be subdued though worldwide inflation is to pick up moderately
*Market interest rates have gradually declined. CB expects downward movement of the benchmark yield rates to permeate to other market interest rates over the coming weeks, further reducing the borrowing costs
*These together with the improved outlook for economic activity, is expected to underpin an expansion in credit utilisation of the private sector, supporting enhanced economic performance |
The Bank said worldwide inflation is expected to pick up moderately in the ensuing months with the base effects of last year’s high consumer prices driven by the commodity price bubble wearing out, as well as firming demand alongside the nascent recovery in global markets.
“Nevertheless, inflation in Sri Lanka is expected to be at subdued levels in the approaching months, with current inflation remaining at around 1 per cent during the four months up to September 2009,” the Bank said.
It was also pointed out that so far during the year, market interest rates have gradually declined in response to the monetary policy relaxation measures of the Central Bank, but are yet to adjust fully to such measures. Benchmark yield rates on Treasury bills have declined significantly by around 800 – 865 basis points since the end of last year, by the first week of October this year.
The Central Bank expects the downward movement of the benchmark yield rates to permeate to other market interest rates over the coming weeks, further reducing the borrowing costs of economic agents. This, together with the improved outlook for economic activity, is expected to underpin an expansion in credit utilisation of the private sector, thereby supporting enhanced economic performance.
In view of these developments, the Monetary Board was of the view that the current levels of policy interest rates do not require any adjustment at the present time, since the policy measures adopted so far are still supportive of the desired outcome of gradual easing of the credit conditions in the country.
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