The banking regulator which was brought under the purview of the Ministry of Economic Affairs under the new government said that with tax cut on fuel and other key commodities announced in the Government’s ‘100-Day Programme’ are expected to reduce inflation further in the months ahead.
The government is expected to reduce the levies on ten important commodities fulfilling the election promises to bring down the cost of living.
In December 2014, headline inflation on a year-on-year basis was at 2.1 per cent compared to 1.5 per cent in the previous month. Core inflation, which directly measures underlying price pressures, continued to remain between 3-4 per cent while decelerating to 3.2 per cent in December 2014 from 3.6 per cent in November.
“While low inflation is mainly attributable to contained demand pressure in the economy, it was also supported by favourable supply side developments, particularly the downward revisions in domestic energy prices in the last few months of 2014,” the Central Bank said.
“Subdued demand pressure and inflation expectations in the economy, the favourable impact of further reductions in fuel prices in January 2015 and the expected reduction of administered prices of other key commodities announced in the Government’s ‘100-Day Programme’ are expected to reduce inflation further in the months ahead. “
The bank said with low market interest rates in nominal terms, credit obtained by the private sector from commercial banks expanded at a healthy pace and increased by 6.5 per cent on a year-on-year basis in November 2014, while in absolute terms, the increase was 57.8 billion rupees during the month. Credit granted against immovable property, plant and machinery, personal guarantees and promissory notes, and other securities as well as unsecured loans increased substantially in November 2014.
“It is expected that the increasing trend in private sector credit disbursements can be sustained throughout 2015 providing the necessary impetus to the growth momentum of the economy.” The bank said.
According to LBO web reports, taking the above developments in the economy into consideration, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank of Sri Lanka unchanged at 6.50 per cent and 8.00 per cent, respectively.
Access to the Standing Deposit Facility (SDF) will remain rationalised.
