MUMBAI, Oct 22 (Reuters) - Sri Lanka's central bank left its
key interest rates unchanged on Thursday, saying the economic
recovery is expected to pick-up speed despite the latest
increase in coronavirus cases.
The Central Bank of Sri Lanka kept the standing deposit
facility rate and the standing lending facility rate at 4.50%
and 5.50%, respectively, and said it will maintain its
accommodative policy settings for now.
Markets had widely expected no change in the key rates.
The statutory reserve ratio was also left unchanged at 2%.
"The Sri Lankan economy is expected to move along a faster
recovery path, despite the latest surge in COVID-19 cases
locally that could hamper near term growth prospects," the CBSL
said in its statement.
The second quarter gross domestic product data has been
delayed, it added, with both the central bank and analysts
expecting the economy to have contracted more than the 1.6% fall
recorded in the first quarter.
The CBSL has cut interest rates by a total 350 basis points
since May last year, when the deadly Easter bomb attacks
triggered a slump in investment and tourism which was followed
by the coronavirus pandemic in early 2020.
The Sri Lankan economy is expected to shrink by 4.6% in 2020
according to the latest projections by the International
Monetary Fund, compared to growth of 2.3% in 2019.
The CBSL however said the unemployment rate declined to
5.4% in the second quarter from 5.7% in the previous three
months, suggesting economic activity hasn't deteriorated much in
the second quarter.
The bank said the recent rise in food prices is expected to
be short-lived supported by domestic supply side developments as
well as the reduction on prices of many essential goods.
"Inflation is expected to remain broadly within the desired
range of 4-6 per cent in the near term and over the medium term
with appropriate policy measures," it added.
Several market rates have declined in response to the
measures taken by the CBSL so far this year, but further space
remains for market rates to decline particularly with the high
level of excess liquidity in the money market, it said.
(Reporting by Swati Bhat; Editing by Kim Coghill & Shri