Operating below potential

Sri Lanka’s central bank kept its benchmark interest rates unchanged to help bolster an economy that’s been hit by bad weather across the South Asian island.

Governor Indrajit Coomaraswamy held the standing lending facility rate at 8.75 percent and the standing deposit facility rate at 7.25 percent, the Central Bank of Sri Lanka said in a statement from Colombo on Thursday. The move was predicted by six of the seven economists in a Bloomberg survey.

The worst drought in 40 years, followed by the most severe flooding in over a decade, curbed growth last year, while disrupting supply chains and pushing the inflation rate above the central bank’s target range of 4 percent to 6 percent. Consumer prices rose 5.8 percent in January from a year ago.

“The decision of the Monetary Board is consistent with the objective of maintaining inflation at mid-single digit levels over the medium term and thereby facilitating a sustainable growth trajectory,” the central bank said. “The economy is currently operating at a level below its potential,” but should recover from weather-related effects as trade and foreign direct investment picks up, it said.

The central bank has been on hold since raising rates in March last year. The International Monetary Fund has said it supports Sri Lanka maintaining a tightening bias and the monetary authority should contain credit growth and inflation. (Bloomberg)

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