Sri Lanka’s central bank left its key interest rates unchanged on Monday (9), but said it could cut rates in future to boost an economy struggling in the wake of a political crisis and sluggish private sector credit growth.
The economy took a battering in the fourth quarter, with annual growth slowing to a 17-year low in 2018 as a weeks-long political crisis and past policy tightenings sapped business confidence and cooled investment.
The rupee, which fell to a record low in early January, has strengthened by more than 4.5 per cent since then, giving policymakers some room to address growth concerns.
The central bank said in a statement that rates could be reduced in future, given inflation expectations, and if current trends continued in global financial markets and in Sri Lanka’s trade balance and credit growth.
“The central bank has given a clear guidance on what could happen going ahead,” Central Bank governor Indrajit Coomaraswamy told reporters in Colombo after the rates decision.
He said sluggish private sector credit growth and high margins between the benchmark rate and deposit/lending rates have been a cause of concern.
Private sector credit growth in February slowed to a multi-year low of 13.6 per cent on the year, down from 14.8 per cent a month ago, official data showed.
Ten out of 13 economists predicted rates would be kept steady in a Reuters poll.