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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Monetary Policy Review – June 2013

Monetary Policy Review – June 2013

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1Monetary Policy Review – June 2013 Empty Monetary Policy Review – June 2013 Fri Jun 07, 2013 7:34 am

VISA


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Press Release

Monetary Policy Review – June 2013
The financial markets have responded as expected to the recent policy
measures taken by the Central Bank, with the relevant financial institutions gradually
making the anticipated adjustments. The reduction in policy rates by 50 basis points
in May 2013 has already been reflected on the deposit rates of major commercial
banks, while the average weighted call money rate and the average weighted prime
lending rate have also moved downwards. It is expected that the easing of monetary
policy since December 2012 would transmit smoothly to the lending rates in the near
future, thereby stimulating a sustained increase in longer term credit growth to the
private sector, thus contributing to a higher level of economic activity, over the
coming months.
Year-on-year broad money (M2b) growth has moderated further in April 2013
to 15.2 per cent from 15.6 per cent in the previous month. Consequently, overall
monetary expansion continues at the levels expected in the Monetary Programme for
the year. Within the overall monetary expansion, the public sector has absorbed a
greater portion of domestic credit, in comparison to the credit extended to the private
sector by commercial banks during the first four months of the year. On a year-onyear basis, the growth of credit to the private sector has decelerated to 10.2 per cent
in April 2013 from 10.9 per cent in the previous month, partly reflecting the effect of
the high base. At the same time, during the year 2013, a compositional shift of credit
disbursements by commercial banks is considered likely, with the expected easing in
public sector borrowing during the remainder of the year and the adjustment of
market lending rates, which would provide the required boost to the longer term
credit growth to the private sector.
Meanwhile, mainly reflecting the recent adjustments in electricity prices,
headline inflation (year-on-year) for May 2013 increased to 7.3 per cent from the 12-
month low of 6.4 per cent in April 2013. However, core inflation (year-on-year)
continued its decreasing trend from February, to record 5.7 per cent in May, while
both headline and core inflation have remained at single digit levels for 52
consecutive months. Going forward, inflation is expected to remain at single digit
levels, supported by supply side improvements and the absence of demand driven
inflationary pressures.
In the external sector, the balance of payments (BOP) has continued to be in
surplus so far during the year, and it is expected that the BOP would improve further
to achieve the external sector projections for 2013. During the year, the Central Bank
has absorbed around US dollars 580 million from the domestic foreign exchange
market on a net basis, supported by increased earnings from trade in services,
workers’ remittances and investment inflows. These developments have resulted in
the gross official reserves increasing to US dollars 6.9 billion by end April 2013,
which is equivalent to 4.4 months of imports, with the rupee strengthening against
major currencies during the year.
Taking the above factors into consideration, the Monetary Board at its meeting
held on 6th June 2013, was of the view that the current monetary policy stance was 3
appropriate and decided to maintain the Repurchase rate and the Reverse Repurchase
rate of the Central Bank at their current levels of 7.00 per cent and 9.00 per cent,
respectively.
The date for the release of the next regular statement on monetary policy
would be announced in due course.

http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20130607e.pdf

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