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Sri Lanka cenbank holds rates steady, expects faster economic recovery

10/21/2020 | 11:09pm EST

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 Navaratnam)

© Reuters 2020
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