Sri Lanka central bank to tighten monetary policy

ECONOMYNEXT – Sri Lanka’s central bank is now veering towards tightening monetary policy with inflation seen edging up, Nandalal Weerasinghe, Deputy Governor of the Central Bank said.

“On monetary policy, we are on the tightening side,” he said. “Market rates are going up. In future, we are ready to take whatever policy measures are needed – if monetary policy needs to be tightened.”
The new government had been expected to reduce the budget deficit but there has been “huge fiscal slippage” this year which has put pressure on the balanced of payments and the rupee, he told a forum at Ceylon Chamber of Commerce.
“Unfortunately the fiscal slippage is much more than expected,” Weerasinghe said. “This has happened in the past too.”

The central bank was now trying to curtail some of the demand coming from imports and had clearly announced to the market it was allowing the currency to fall, he said.

Weerasinghe said there had been no need to tighten monetary policy when inflation was low but now inflationary expectations had changed.

Sri Lanka’s budget deficit for 2015 may expand to 6.8 to 6.9 percent of gross domestic product, up from a planned 4.4 percent, Finance Minister Ravi Karunanayake has said.
(Colombo/December 17, 2015)

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