The Monetary Board of Central Bank has decided to further relax monetary policies amid low inflation and reduce policy interest rates aiming to boost economic growth, the Central Bank said in its monetary policy Tuesday.
The Monetary Board of the Bank has decided to reduce both rates by 50 basis points and accordingly, the Repurchase Rate will be 6.50 percent and the Reverse Repurchase Rate will be 8.50 percent with immediate effect.
The Central Bank said in its Monetary Policy Review for October that the sensible demand management policies and supply side improvements have resulted in inflation remaining at single digit levels for the past 56 months, signaling the success of policies already implemented.
The Bank said that during the year, the conduct of monetary policy has been aimed at providing the necessary impetus to allow for economic growth to accelerate, in the absence of demand pressures.
Early in 2012 the Central Bank and the government adopted strict policy measures to curtail excessive credit growth and the high import demand to contain the trade deficit that was growing along with dwindling reserves since the latter part of 2011.
The Bank gradually eased the tighter policies and twice - in December 2012 and May 2013 reduced the policy rates to encourage private sector investments.
"These policies have strengthened the macroeconomic environment which is likely to enable the economy to comfortably exceed a GDP growth rate of 7 percent in 2013, " the monetary authority said in a statement.
Although the concerns regarding the global economic recovery amid the political impasse in the United States are weighing high, with the inflow of NSB bond proceeds, and the decline of the trade account deficit by 24.2 percent in August 2013 due to higher earnings from exports and a reduction in the expenditure on imports Sri Lanka's gross official reserves have reached US$ 7.0 billion.
"In this background, the Central Bank was of the view that, in keeping with the benign inflation and favorable inflation outlook environment, there is still further space to ease monetary policy in order to harness Sri Lanka's full economic potential, and stimulate the economy to reach a higher growth trajectory in 2014," the Bank said in deciding to reduce rates.