Sri Lanka holds rates

Sri Lanka’s central bank has kept interest rates unchanged in an effort to encourage bank lending and spur economic growth. Information released today shows the monetary policy committee kept the repurchase rate at a low of 7.5 per cent, having cut it by three percentage points so far this year. The reverse repo rate was kept at 9.75 per cent, having been cut by 2.25 percentage points this year.

“Still there is room for lending rates to come down and more credit growth,” Nandalal Weerasinghe, an assistant governor at the central bank, told Reuters.

There is quite a margin between central bank rates and those seen by consumers, however. The weighted average prime lending rate is at 11.29 per cent, but average bank lending rates are still around 15 per cent. The economy, still struggling to recover from the financial crisis and the civil war, is expected to expand at an eight-year low of 3.5 percent this year, from 6 percent last year.

Inflation, while rising, is forecast to remain subdued, and the Bank points out that the country will record a current account surplus in 2009 for the first time since 1977. The surplus measures $393m for the first nine months of the year.

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