Central Bank releasing the monetary policy review for May 2016 on Friday (June 24) has decided to continue maintaining current policy interest rates.
Accordingly, the Monetary Board has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.50 percent and 8.00 percent, respectively while the Statutory Reserve Ratio remains at 7.50 percent.
The Central Bank noted that the Sri Lankan economy grew by 5.5 percent, in real terms, in the first quarter of 2016 compared to the growth of 2.5 percent recorded in the last quarter of 2015 and the growth rate recorded in the first quarter was broadly in line with expectations for the year.
As anticipated, inflation increased in the month of May to 4.8 percent from 3.1 percent in the previous month reflecting the impact of the increase in Value Added Tax (VAT) and the removal of certain exemptions applicable on VAT and Nation Building Tax (NBT), as well as the supply side disruptions due to adverse weather conditions.
Inflation is expected to moderate in the period ahead and remain in mid-single digits in the medium term supported by appropriate demand management policies.
In the monetary sector, the year-on-year growth of broad money (M2b) decelerated to 18.2 percent in April 2016 compared to 18.9 per cent recorded in March 2016.
The trade deficit contracted by 2.4 percent on a cumulative basis in the first four months of 2016 while the earnings from tourism are estimated to have increased by 18.4 percent in the first five months of the year. Workers' remittances recorded an increase of 4.7 percent during the period from January to April 2016.
Gross official reserves were estimated at US$ 5.6 billion by end May 2016.
Following the approval of the IMF-EFF of US$ 1. 5 billion earlier this month, the Sri Lankan rupee appreciated against the US dollar so far during the month of June 2016.
"Going forward, the EFF and other multilateral and bilateral credit facilities, along with the planned structural reforms and the realization of the envisaged nondebt-creating capital inflows, are expected to strengthen the country’s external position," the Bank said.