The regulator says with tax cut on fuel and other key commodities announced in the Government’s ‘100-Day Programme’ are expected to reduce inflation further in the months ahead.
In December 2014, headline inflation on a year-on-year basis was at 2.1 per cent compared to 1.5 per cent in the previous month.
Core inflation, which directly measures underlying price pressures, continued to remain between 3-4 per cent while decelerating to 3.2 per cent in December 2014 from 3.6 per cent in November. “While low inflation is mainly attributable to contained demand pressure in the economy, it was also supported by favourable supply side developments, particularly the downward revisions in domestic energy prices in the last few months of 2014,” Central bank said.
“Subdued demand pressure and inflation expectations in the economy, the favourable impact of further reductions in fuel prices in January 2015, and the expected reduction of administered prices of other key commodities announced in the Government’s ‘100-Day Programme’ are expected to reduce inflation further in the months ahead. “
The bank said with low market interest rates in nominal terms, credit obtained by the private sector from commercial banks expand at a healthy pace and increased by 6.5 per cent on a year-on-year basis in November 2014, while in absolute terms, the increase was 57.8 billion rupees during the month. Credit has granted against immovable property, plant and machinery, personal guarantees and promissory notes. Unsecured loans also have increased substantially in November 2014. “It is expected that the increasing trend in private sector credit disbursements can be sustained throughout 2015 providing the necessary impetus to the growth momentum of the economy.” The bank said.
Taking the above developments in the economy into consideration, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank of Sri Lanka unchanged at 6.50 per cent and 8.00 per cent, respectively.
Access to the Standing Deposit Facility (SDF) will remain rationalised.
(LBO)
