2017.09.2601:56:00UTC+00Sri Lanka Maintains Key Rates As Expected

Sri Lanka's central bank decided to keep its key interest rates unchanged on Tuesday.

The monetary board of the Central Bank of Sri Lanka maintained the standing deposit facility rate at 7.25 percent and the standing lending facility rate at 8.75 percent.

Taking into account the developments and outlook in the domestic and international macroeconomic environment, the board said the current monetary policy stance is appropriate.

Despite disruptions to near term growth prospects continue, forward looking indicators showed improved medium term prospects.

Further, policymakers observed acceleration in both headline and core inflation in August.

Nevertheless, projections indicate that inflation will revert to the envisaged mid-single digit levels by end 2017 and stabilize thereafter, underpinned by tight monetary conditions that have been in place from the beginning of 2016, the bank said.

Looking ahead, despite the recent rebound in inflation, Capital Economics' economist Gareth Leather expects interest rates to be left unchanged for the remainder of the year.

Despite the poor outlook for the economy, policy is unlikely to be loosened, he said. Forex debt, which is equivalent to more than 50 percent of GDP, means a sudden and sharp depreciation could significantly push up debt burdens in rupee terms, the economist noted.