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Sri Lanka's central bank held its key policy interest rates steady for a third straight month on Friday, as expected, saying the recent tightening measures should start to rein it rapid credit growth and temper liquidity conditions. The central bank left the standing deposit facility (SDF) rate and the standing lending facility rate (SLFR) at 6.50 percent and 8.00 percent, respectively. It tightened the policy twice since December as authorities stepped up efforts to defend a sliding rupee.
"Reflecting the gradual transmission of increased short term..to broader market interest rates, the expansion of monetary and credit aggregates is expected to moderate from the second quarter of the year," the bank said in a statement. Private sector credit grew 27.7 percent in March year-on-year, its fastest pace since August 2012 despite the recent tightenings and has raised worries about investments in "speculative" assets.
"Rising credit growth is a worrying sign. This also shows that the past tightening measures" are yet to be felt, said analyst Shiran Fernando at Colombo-based Frontier Research. The on-hold decision comes less than a month after the International Monetary Fund (IMF) reached agreement with the Sri Lankan government for a $1.5 billion bailout to help the island nation avert a balance of payments crisis.

Copyright Reuters, 2016

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