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Sri Lanka will continue its current monetary stance with inflation expected to moderate, Deputy Central Bank Governor Dharma Dheerasinghe has said, though a signal rate edged higher with new policy tools being deployed.
Sri Lanka's 12-month inflation fell to 6.4 percent in September from 7.0 percent in August.
Inflation was expected to dip below 6.0 percent in December, Dheerasinghe said.
"We think the current monetary stance is sufficient," Dheerasinge said in an October 06 interview.
"Unless we see some extraordinary developments we will continue with this policy."
Dheerasinghe was speaking to LBO a day after the Central Bank resumed daily reverse repo auctions to inject cash and calm money markets after a liquidity crunch from forex sales pushed overnight interest rates up.
The Central Bank is expected make a monetary policy announcement later Monday.
Sri Lanka has a policy corridor made up of a 7.0 percent standing window to drain excess liquidity and 8.50 percent to inject cash into the system.
But over the past three weeks, a signal policy rate has been converging around 7.25 percent as long dormant monetary policy tools were re-activated by the Central Bank to counter liquidity shortages coming from defending a dollar peg.
Deputy Governor Dheerasinghe has said the interventions are temporary, to accommodate a surge in mostly capital and intermediate goods imports, which are necessary for growth and inflows are expected towards the latter part of the year.
Since the end of a balance of payments crisis in May 2009 Sri Lanka's monetary policy tools were geared to drain excess liquidity generated from dollar purchases.
In October 2010, after the central bank ended cash auctions to drain liquidity, overnight rates converged around the floor of the policy corridor.
Sri Lanka last cut the floor rate on January 11, to 7.00 percent from 7.25 percent.
Repo auctions to drain liquidity were re-activated on September 19, 2011, with the central bank accepting excess cash at 7.08 percent, effectively pushing up the signal policy rate up 08 basis points.
On October 05, reverse repo auctions were re-activated to calm markets and inject cash amid continued forex sales that sent overnight gilt backed loan rates to 7.65 percent.
Cash was injected on the first day at an average rate of 8.25 percent, with a bank mistakenly bidding for money at around the ceiling standing facility rate of 8.50 percent, higher than the most expensive market repo deals.
On Thursday the Central Bank accepted all the 7.29 billion bids for an average rate of 7.25 percent with cash-short market participants bidding at lower rates.
On Friday the central bank only accepted 1.3 billion rupees of bids at an average rate of 7.25 percent rejecting some of the bids, effectively establishing a new signal rate if future auctions also continue at the same rate, dealers said.
On Monday overnight repo was quoted around 7.15/20 percent and call money around 8.08/08 percent, dealers said.
http://lbo.lk/fullstory.php?nid=1927216247
Sri Lanka's 12-month inflation fell to 6.4 percent in September from 7.0 percent in August.
Inflation was expected to dip below 6.0 percent in December, Dheerasinghe said.
"We think the current monetary stance is sufficient," Dheerasinge said in an October 06 interview.
"Unless we see some extraordinary developments we will continue with this policy."
Dheerasinghe was speaking to LBO a day after the Central Bank resumed daily reverse repo auctions to inject cash and calm money markets after a liquidity crunch from forex sales pushed overnight interest rates up.
The Central Bank is expected make a monetary policy announcement later Monday.
Sri Lanka has a policy corridor made up of a 7.0 percent standing window to drain excess liquidity and 8.50 percent to inject cash into the system.
But over the past three weeks, a signal policy rate has been converging around 7.25 percent as long dormant monetary policy tools were re-activated by the Central Bank to counter liquidity shortages coming from defending a dollar peg.
Deputy Governor Dheerasinghe has said the interventions are temporary, to accommodate a surge in mostly capital and intermediate goods imports, which are necessary for growth and inflows are expected towards the latter part of the year.
Since the end of a balance of payments crisis in May 2009 Sri Lanka's monetary policy tools were geared to drain excess liquidity generated from dollar purchases.
In October 2010, after the central bank ended cash auctions to drain liquidity, overnight rates converged around the floor of the policy corridor.
Sri Lanka last cut the floor rate on January 11, to 7.00 percent from 7.25 percent.
Repo auctions to drain liquidity were re-activated on September 19, 2011, with the central bank accepting excess cash at 7.08 percent, effectively pushing up the signal policy rate up 08 basis points.
On October 05, reverse repo auctions were re-activated to calm markets and inject cash amid continued forex sales that sent overnight gilt backed loan rates to 7.65 percent.
Cash was injected on the first day at an average rate of 8.25 percent, with a bank mistakenly bidding for money at around the ceiling standing facility rate of 8.50 percent, higher than the most expensive market repo deals.
On Thursday the Central Bank accepted all the 7.29 billion bids for an average rate of 7.25 percent with cash-short market participants bidding at lower rates.
On Friday the central bank only accepted 1.3 billion rupees of bids at an average rate of 7.25 percent rejecting some of the bids, effectively establishing a new signal rate if future auctions also continue at the same rate, dealers said.
On Monday overnight repo was quoted around 7.15/20 percent and call money around 8.08/08 percent, dealers said.
http://lbo.lk/fullstory.php?nid=1927216247
