No plans to increase interest rates:Central Bank
View(s):Based on current projections, an increase in market interest rates in Sri Lanka is not expected in the near term, the Central Bank (CB) said on Monday.
Clarifying unnamed media reports which said interest rates may go up, the CB said in a media statement that the recent movements in headline inflation, core inflation, inflation expectations, broad money growth, credit expansion, expansion in economic activity as well as the international reserve position do not justify the view that a rational market would also expect an increase in interest rates.
Official reserves are currently estimated at around US$ 7.9 billion compared to $6 billion at end 2016. The improvement in reserves is recorded on both quantitative and qualitative aspects, with the CB purchasing $1.7 billion from the domestic market on a net basis in 2017 and $284 million so far during 2018.
The statement said that with the decline in food inflation, headline inflation has reverted to mid-single digit levels faster than expected, while core inflation, which is an indicator of demand driven inflation, has remained subdued. Inflation expectations, as measured by the CB’s Inflation Expectations Survey, have moderated. Economic growth has remained below potential, implying that there is space for aggregate demand to expand without fuelling inflationary pressures.
“Although recent global market developments and domestic uncertainties attributed to non-economic factors have generated some volatility in the domestic market in the month of February, such volatility is expected to be short lived. In fact, the foreign exchange market has already stabilised while speculation in the government securities market has also moderated substantially,” it said assuring that there is no plan to increase interest rates.