Central Bank has decided to maintain current policy interest rates as the Monetary Board of the Bank is satisfied that the policy measures adopted earlier this year are effective in reducing trade deficit and ensuring long term growth and stability of the economy.
Following its monthly Monetary Board meeting, the Central Bank in a statement today said the Repurchase rate would remain at 7.75 percent while the Reverse Repurchase rate remains at 9.75 percent.
The Central Bank said the policy measures adopted by the Bank and the government during the period from February to April this year to curtail the credit growth, reduce import demand to stabilize the external sector have begun to show desired results.
In April the private sector credit in absolute terms increased only Rs.18.7 billion, significantly lower than the average monthly growth of Rs. 51.8 billion in the first quarter 2012 and Rs. 27.4 billion in April 2011.
Market interest rates, which had increased substantially so far in 2012 as a result of tight monetary conditions, have started to stabilize in recent weeks.
The Bank said the imports are declining at a rapid pace according to the policy measures adopted, but despite the incentives provided the exports have also declined due to the global developments.
However, the monetary authority expects the depreciation of the exchange rate to support export competitiveness while further curtailing import expenditure leading to a significant reduction in the trade deficit in 2012.
The Bank expected the projected growth rate of 7.2 percent to be achievable for 2012 as the growth momentum of the economy last year is estimated to have continued into the first quarter of 2012.
"As a result, although growth is expected to gradually moderate from thesecond quarter onwards, it is expected that the previously estimated 7.2 percent growth for the year 2012 would be achieved," the Central Bank said.
Although the inflation increased in May 2012 to 7 percent on a year-on-year basis, it has remained at single digit levels for the past 40 consecutive months, the Bank observed.
"Accordingly, the Monetary Board is of the view that the current monetary policy stance of the Central Bank is appropriate and should be maintained," it said.