Central Bank hikes policy rates again

The Central Bank of Sri Lanka (CBSL) further hiked policy rates yesterday raising both the repurchase rate and reverse repurchase rate from 25 and 75 basis points respectively, citing continuous growth of credit at an ‘undesired pace’.

It hiked policy rates in February by 50 basis points to curb loan growth and advised banks to trim credit.

“Notwithstanding the increase in the Central Bank policy interest rates in February 2012 and the Direction issued to restrain the growth of credit extended by licensed banks, there are still some signs that credit growth is continuing at an undesired pace,” the Central Bank said in its monetary policy review.

It further said that due to the recent dollar inflows to the country by way of IMF tranche and for government securities, stock exchange and to a few private banks, along with the prudential policy measures by the Central Bank and the government, the domestic foreign exchange market has shown clear signs of stabilization .

Accordingly, the Rupee, which depreciated against the US dollar to Rs. 130.41 on 21st March, appreciated by 3.94 per cent during the period from 21stmarch to 4th April 2012 to reach Rs. 125.47.

The Central Bank also said that dollar inflows to the government and the private sector have not raised the gross official reserves to approximately US $ 6.1 billion, which is equivalent to 3.6 months as at April 4, 2012.

In the meantime, broad money supply grew by 21.9 percent, year-on-year, in February 2012. Net Credit to the Government (NCG), increased substantially by Rs. 136.3 billion during the first two months of the year, while credit extended to the private sector also increased, year-on-year, by 34.4 percent.

“This increase, amounting to around Rs.100 billion in the first two months of the year, has resulted in the continued high growth of monetary aggregates, although the recent policy measures introduced by the Central Bank are expected to decelerate the expansion in broad money supply in the near term,” the Central Bank said.