Sri Lanka C. Bank Hikes Policy Rates For First Time In Five Years

Sri Lanka's central bank on Friday decided to hike the key policy rate for the first time since 2007 to contain excessive credit growth.

The Central Bank of Sri Lanka raised the repurchase rate by 50 basis points to 7.5 percent and similarly lifted the reverse repurchase rate to 9 percent.

The Monetary Board said that the continuous increase in credit extended to the private sector by commercial banks needs to be addressed to reduce trade and current account deficits, and to curb inflation.

The central bank also decided to direct lenders to moderate their credit disbursements so that the overall credit growth in 2012 will not exceed 18 percent of their respective loan book outstanding at the end of 2011. Credit growth of up to 23 percent will be allowed for those banks, which finance the excess up to 5 percent of the credit growth, from funds mobilized from overseas.

In addition, the bank will regularly monitor the targets for inflows, which would help increase net foreign exchange inflows to the country, thereby enabling the balance of payments to record a healthy surplus in 2012.

The Monetary Board said "these adjustments to the monetary policy stance of the Central Bank, as well as other measures that may be adopted by relevant authorities would materially reduce the need for the Central Bank to supply foreign exchange to the market, on a net basis, during 2012." (Provided by RTTNews)