The Central Bank of Sri Lanka yesterday announced that key policy rates will remain unchanged amidst market speculation that the regulator would push rates up in the wake of an expanding budget deficit coupled with a recovery in private sector credit growth.

Announcing the Monetary Policy Review for August 2015, the Central Bank said the Monetary Board at its meeting held on 31 August 2015, was of the view that the current monetary policy stance is appropriate and hence decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 per cent and 7.50 per cent, respectively.

However, according to the Central Bank, the year-on-year growth of credit extended to the private sector by commercial banks accelerated to 19.4 per cent in June 2015 compared to 17.6 per cent in May 2015 supported by the prevailing low interest rates.

On the other hand, credit disbursed in absolute terms increased by around Rs. 55 billion during the month of June, while on a cumulative basis, credit to the private sector increased by around Rs. 205 billion during the first half of 2015 compared to a decline of Rs. 53 billion during the corresponding period in 2014.

Comparatively, private sector credit growth in absolute terms in the two previous years of 2013 and 2014 had been a mere Rs.176 billion and Rs.224 billion respectively.

“…The expansion in private sector credit in the first half of the year was largely due to higher disbursements of credit to the Industry and Services sectors. Nevertheless, the rapid increase in the imports of consumer durables including motor vehicles driven by credit available at low interest rates, among other things, has raised some concerns.”

“The Central Bank is closely monitoring these developments in order to ensure that credit continues to be available to support productive economic activity while avoiding excessive expansion in credit in the period ahead,” the Monetary Policy Review for August 2015 stated.