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Sri Lanka policy rates unchanged amid strong credit

COLOMBO, Nov 18, 2014 (EconomyNext) – Sri Lanka kept policy rates unchanged amid strong pick up in bank credit growth and low inflation, the island’s central bank said.

In September bank credit to private business had risen by 52.3 billion rupees on the back of a 47.7 billion rupees in August.

"The quarterly survey of commercial banks’ loans and advances to the private sector reflected substantial credit flows to the Industry and the Services sectors in the first three quarters of the year," the Central Bank said in its November monetary policy statement.

The contraction in pawning or gold back lending which came in the wake of falling gold prices has also slowed, the monetary authority said.

Inflation only rose 1.6 percent in the 12 months to October 2014. Cuts in energy prices and low commodity prices globally will help keep inflation in check.

Global commodity prices as well as gold have fallen as the US Federal Reserve ends it deadly money printing activities amid weak credit.

The Central Bank said it was keeping its policy rate to withdraw liquidity from the banking system at 6.5 percent 6.00 percent and the rate at which new money is injected at 8.00 percent.

Sri Lanka’s interest rates including Treasuries yield, fixed deposit rates are now at a record low raising fears of mal-investments and a asset price bubbles.

Analysts say stronger credit growth will also start putting downward pressure on the currency and end the ability of the Central Bank to collect more foreign reserves.

 

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