CB doesn’t hike interest rates but tightens credit demand

Sri Lanka's Central Bank (CB) on Wednesday didn’t hike policy interest rates as expected  but reduced the amounts commercial banks will have on a daily basis to lend in the market. The move came after the Sri Lanka Rupee hit a new low, being traded at 144.10 to the US dollar on Wednesday,

The CB’s Monetary Board, after its December 30 meeting, decided to raise the Statutory Reserve Ratio (SRR) applicable to all rupee deposit liabilities of commercial banks by 1.50 percentage points to 7.50 per cent effective from January 16. 
“Furthermore, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at their current levels of 6.00 per cent and 7.50 per cent, respectively,” the CB statement on Wednesday night said.
“If the current excess liquidity in the domestic money market continues to remain high for an extended period, it could lead to an undue expansion in monetary aggregates, fuelling future inflation in the economy. In that respect, the Monetary Board is of the view that it is appropriate to restrain the build-up of demand-side pressure on inflation to ensure continued monetary and price stability,” it said. 
Colombo banking sector had expected a marginal hike in interest rates in line with US interest rates in early December going up for the first time in several years.- ENDS --