Sri Lanka holds rates; inflation, credit growth ease further

    The Central Bank of Sri Lanka held its benchmark repurchase rate steady at 7.75 percent, as expected, saying inflation eased in October and should decline further while the growth of broad money and credit to the public sector decelerated sharply in the third quarter.
    The central bank, which has raised rates by 75 basis points so far this year to control inflation, said the global economy should slow further due to the "absence of proactive leadership amidst economic contraction" in the euro area, but recovery may be supported by a joint effort between the U.S. and euro area following the conclusion of US presidential elections.
    Sri Lanka's inflation rate eased to 8.9 percent in October from 9.1 percent in September due to lower food prices.
    "The onset of the intermonsoonal rains is likely to increase the supply of agricultural produce alleviating price pressures further," the bank said.
    Sri Lanka's inflation rose this year, peaking at 9.8 percent in July, due to changes in administered prices in March and the central bank expects this base effect to first disappear by March next year at which point the inflation rate expected to drop.

    The growth of credit to the private sector by commercial banks eased to an annual 25.5 percent in September from over 35 peak percent prior to April, the bank said, adding the government's commitment to fiscal consolidation "is likely to provide comfort to the conduct of monetary policy in the years ahead."
    Sri Lanka's Gross Domestic Product slowed to an annual rate of 6.4 percent in the second quarter from 7.9 percent in the first quarter, with growth this year forecast to ease to 6.8 percent from 2011's record 8.3 percent.

    For 2013 the central bank expects growth to rebound to 7.5 percent as the global economy is expected to recover.

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