Business

Monetary Board maintains policy rates

 

  • Reserves plummet to $ 2.6 b by end September
  • Expects real economy to grow around 5% in 2021

 

The Monetary Board of the Central Bank of Sri Lanka (CBSL), at its meeting held on 13 October 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. 

Issuing a statement, the Board noted that it arrived at this decision after carefully considering the macro-economic conditions and expected developments on the domestic and global fronts. 

With the gradual return to normalcy after phasing out the Covid-19-related lockdown measures, alongside the successful rolling out of the Covid-19 vaccination programme and growth supportive policy measures, the momentum of economic activity is expected to sustain in the period ahead. 

“Available indicators and projections suggest that the real economy would grow by around 5% in 2021, and gradually traverse to a high and sustained growth trajectory over the medium term, following near-term stabilisation measures that are being put in place by the Government and the Central Bank,” the CBSL noted. 

It further noted that the realisation of foreign investments in the real sector and the timely adoption of remedial measures by the CBSL as enunciated in “The Six-month Road Map for Ensuring Macroeconomic and Financial System Stability” are gradually easing pressures in the domestic foreign exchange market. 

“Furthermore, the Central Bank continued to intervene in the foreign exchange market to provide liquidity for essential imports, including fuel. The depreciation of the Sri Lankan rupee (SLR) against the US dollar is recorded at 6.8% thus far in 2021. The SLR remains largely undervalued as reflected by the real effective exchange rate (REER) indices. In the meantime, gross official reserves were estimated at $ 2.6 billion by the end of September 2021. This, however, does not include the bilateral currency swap facility with the People’s Bank of China (PBoC) of ¥ 10 billion (equivalent to approximately $ 1.5 billion).” 

According to the CBSL, the gross official reserves are expected to improve with the measures that are being pursued by the Government and the CBSL to attract fresh foreign exchange inflows, as outlined in the Six-month Road Map, thereby reinforcing the stability of the external sector in the period ahead.