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Sri Lanka holds rates; SOE borrowing grow

May 09, 2017 08:31 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Sri Lanka held rates unchanged at a monetary policy review in May with private sector credit slowing, but state enterprises borrowings going up with higher oil prices and drought hurting power generation.

The central bank said credit to the private sector slowed to 21 percent by end February 2017 and 20.4 percent by end march from 21.9 percent at the end of 2016.

But broad money grew 20 percent in March, up from 18.4 peent with state sector borrowings picking up.

"This included the expansion of credit to public corporations, some of which were affected by the impact of the drought and increased international energy prices," the Central Bank said.

"As market interest rates remain substantially high, both in nominal and real terms, it is expected that credit extended to the private sector will decelerate to the envisaged levels by end 2017."

Policy rates were maintained at 7.25 percent and 8.75 percent.

Consumer prices had risen 6.9 percent in the 12-months to April, compared to 7.3 percent in March, while core inflation,- had slowed to 6.8 percent from 7.3 percent.

"Supported by monetary policy adjustments from end 2015, inflation is projected to decelerate gradually to the desired mid-single digit levels by end 2017, although there could be some monthly fluctuations due to short term supply side disruptions and the base effects of tax revisions in 2016," the statement said.

In the first two months of the year the trade deficit had increased to 1.7 billion US dollars, from 1.2 billion US dollars a year earlier.

In January tens of billions of rupees were printed to repay a maturing bond, which undermines any policy rate hikes dome by the central bank and drives credit and imports up.

Losses at state enterprises, especially those using fuel, also drive credit and imports up.

In the second quarter of 2017, oil prices have started to ease, though thermal power generation is still high.

The central bank said there were inflows to the Colombo Stock Exchange and bond markets. A 1.5 billion US dollar sovereign bond was also sold.

Along with an expected disbursement from the International Monetary Fund, reserves were expected to go up from 5.0 billion dollars in April.

The rupee had fallen 1.5 percent against the US dollar up to May 05, 2017.


 

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