Central Bank keeps policy rates unchanged, urges political stability

COLOMBO (News1st):  The Central Bank said Thursday, it is keeping policy rates unchanged as the economy is stabilising and showing signs of recovery from extreme weather that hampered agri-based production in 2017. “There were grounds for cautious satisfaction that the economy was stabilising nicely,” Central Bank Governor Dr. Indrajit Coomaraswamy told reporters. The Monetary Board kept the standing deposit facility rate (SDFR) at 7.25% and the standing lending facility rate (SLFR) at 8.75% despite expectations that rates will be eased to spur growth. Sri Lanka’s economy grew 3.3% in Q3 of 2017, a decline from the growth of 4% in Q2 of 2017. It is expected that Sri Lanka’s 2017 economic growth may fall below 4.5-pct from a projected 5.5% to 6.0%. The Monetary Board noted that the economy is currently “operating at a level below its potential” but, expressed confidence of the economy stabilising and gathering momentum. “As per the available indicators, the economy is likely to recover from the effects of adverse weather conditions in the past two years and benefit from the expected boost in external demand and foreign direct investment inflows,” the Central Bank said. "Improvements in the trade front, including the execution of new trade agreements supported by increased private investment driven by structural reforms, are also likely to provide the necessary impetus for the economy to achieve its potential in the medium term” The Central Bank expects 5% to 5.5% economic growth this year and, the decision to keep rates steady comes in the wake of political uncertainty following the shock defeat suffered by the ruling coalition government. Dr. Indrajit Coomaraswamy said, political uncertainty could impact sentiment which could lead to a reduction in investment and growth. “It is too early to tell how things would turnout but in an ideal world there should be stability quickly and we should move on,” Coomaraswamy said. “Clearly, if you have prolonged political instability, you can’t have accelerated growth and development. The faster we get political stability the better.”