Central Bank maintains policy rates

26 Nov 2021

Central Bank maintains policy rates

26 Nov 2021

The Monetary Board of the Central Bank of Sri Lanka (CBSL), at its meeting held on 24 November 2021, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the CBSL at their current levels of 5% and 6%, respectively. The Board arrived at this decision after “carefully” considering the macroeconomic conditions and expected developments on the domestic and global fronts. The Board noted the recent acceleration of inflation, driven mainly by supply disruptions and the surge in global commodity prices, and reiterated its commitment to maintaining inflation at the targeted levels over the medium term with appropriate measures, while supporting the economy to reach its potential in the period ahead. The Board added that the Sri Lankan economy witnessed a strong recovery during the first half of 2021, supported by fiscal and monetary stimulus measures. The re-emergence of the Covid-19 pandemic and the resultant disturbances to production activities appear to have affected the ongoing recovery somewhat during the third quarter of 2021. However, the available high-frequency indicators suggest that economic activity is fast returning to normalcy. The removal of Covid-19-related lockdown measures in October 2021 and the successful nationwide Covid-19 vaccination rollout would help activity in the period ahead. While real gross domestic product (GDP) growth is projected at around 5% in 2021, the ongoing rise in Covid-19 infections, both globally and domestically, could impact this expectation to some extent. Earnings from merchandise exports remained robust, recording over $ 1 billion for the fourth consecutive month in September 2021. Preliminary data show that merchandise exports have recorded an all-time high in October 2021. Expenditure on imports also increased, widening the trade deficit during the nine months ended September 2021 over the corresponding period of the previous year. The tourism sector has displayed strong signs of revival with the easing of restrictions. Despite subdued inflows on account of workers’ remittances in recent months, a rebound is expected in the period ahead with the continuous rise in worker migration and efforts taken to facilitate remittance flows through formal channels. The depreciation of the Sri Lanka rupee against the US dollar is recorded at 7.2% thus far in 2021. The exchange rate has remained stable at around Rs. 200- 203 levels against the US dollar during the past three months. Meanwhile, gross official reserves were estimated at $ 2.3 billion by end-October 2021. This, however, does not include the bilateral currency swap facility with People’s Bank of China (PBoC) of ¥ 10 billion.

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Central Bank maintains policy rates

Central Bank maintains policy rates

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