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 6.50 per cent and 8.00 per cent, respectively. The Central Bank said the year-on-year growth of broad money (M2b) indicated some deceleration, recording 18.9 per cent in March 2016, compared to 19.8 per cent in February 2016.
“The expansion in domestic credit remained the key driver of broad money growth, within which credit extended to the private sector by commercial banks recorded a year-on-year growth of 27.7 per cent in March 2016, compared to 26.5 per cent in the previous month,” the Monetary Policy Review announcement stated.

The Bank further noted that headline inflation, as measured by the Colombo Consumers’ Price Index (CCPI, 2006/07=100), was 3.1 per cent, year-on-year, in April 2016 compared to 2.0 per cent in the previous month. Annual average headline inflation based on CCPI edged up to 1.3 per cent from 1.1 per cent in March 2016.

However, the CCPI based core inflation remained unchanged at 4.5 per cent in April 2016, on a year-on-year basis, compared to the previous month. Meanwhile, the National Consumer Price Index (NCPI, 2013=100) based headline inflation increased to 2.2 per cent, year-on-year, in March 2016 compared to 1.7 per cent in the previous month, while on an annual average basis, it stood at 2.4 per cent.

“The recent increase in the Value Added Tax (VAT) rate and the removal of certain exemptions applicable on VAT and the Nation Building Tax (NBT) are expected to have a one-off impact on inflation, while the supply side disruptions due to prevailing adverse weather conditions could exert some upward pressure on inflation in the immediate future. In spite of these temporary disruptions, inflation is expected to remain in mid-single digit levels supported by appropriate demand management policies,” the statement further outlined.

The Central Bank said earnings from tourism are estimated to have increased by 20.0 per cent in the first four months of the year while workers’ remittances recorded an increase of 8.1 per cent during the first quarter. Gross official reserves are estimated to have declined marginally to US dollars 6.1 billion by end April 2016 from US dollars 6.2 billion in the previous month while the Sri Lanka rupee has recorded a marginal depreciation thus far during 2016.