Central Bank stays pat; confident inflation will hit 5%

As widely expected, the Central Bank yesterday decided to keep the policy rate, the Overnight Policy Rate, unchanged at 7.

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75 percent at its sixth policy meeting and the final one for the year.The Monetary Policy Board arrived at this decision considering that the current rates are appropriate to steer inflation towards their medium-term target of 5 percent by the second half of next year and also to help the economy to reach its full potential.

After nearly a year of deflation, inflation has been picking up in the last three months, with the Colombo Consumer Price Index coming in at 2.1 percent for October from a year ago.

Going into this week’s monetary policy meeting, it was largely a foregone conclusion that the Central Bank wouldn’t change its monetary policy stance, given where the prices are and also the robustness of the economy.

In fact, the Monetary Policy statement took note of the current spell of higher growth in private sector credit so far this year and said it expects the conditions to remain in the period ahead.

In the first nine months, the licensed commercial banks extended as much as Rs.1.365 billion in fresh credit to the private sector, at a robust 22.1 percent growth from a year earlier.