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The Monetary Board of the Central Bank of Sri Lanka last week decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 percent and 7.50 percent, respectively.

The Bank said headline inflation remained in the negative territory for the second consecutive month, recording -0.2 percent in August 2015 on a year-on-year basis while on an annual average basis, moderated further to 1.0 percent in August 2015 from 1.3 percent in the previous month. Meanwhile, core inflation, which reflects the underlying price movements in the economy, however had increased to 3.9 percent in August 2015 on a year-on-year basis, from 3.5 percent in the previous month.

“Going forward, the inflation outlook and expectations remain favorable for the remainder of the year, supported by improved domestic supply conditions and subdued global commodity prices,” the CBSL said.

Meanwhile, the year-on-year growth of credit extended to the private sector by commercial banks accelerated to 19.4 percent in June 2015 compared to 17.6 percent in May 2015. 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.

“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 Bank acknowledged.