COLOMBO: Sri Lanka’s central bank held key interest rates unchanged on Friday after a monthly monetary policy meeting with inflation moderating in April and May, and the economy expected to recover in the second half. “Growth in the first quarter was weighed down by the impact of unfavourable weather conditions, particularly on agriculture related activities,” the monetary policy statement said. “The performance of industry related activities was largely driven by the continued expansion in construction, while services related activities recorded a moderate growth. The economy is expected to recover during the second half of the year.”
The economy grew by 3.8 per cent (year-on-year) in the first quarter of 2017, while core inflation eased to 5.2 percent in May, from 6.8 percent in April measured by the Colombo Consumers Price Index. “As the impact of the revisions to the tax structure and weather-related supply disruptions is expected to dissipate in the period ahead, inflation is projected to moderate to mid-single digits by the end of 2017, and stabilise thereafter.” The statement said the expansion in credit obtained by state owned business enterprises (SOBEs) posed a risk to the behaviour of overall domestic credit “reflecting the need to address concerns in relation to the financial performance of key SOBEs.”
In terms of government securities, revenue based fiscal consolidation process and inflows to the government due to foreign borrowings “appear to have reduced the pressure on interest rates in the government securities market substantially,” the statement noted. “In line with these developments and the successful issuance of the International Sovereign Bond as well as the receipt of syndicated loan proceeds by the government, gross official reserves improved to above US dollars 7.0 billion by mid-June 2017.”
