COLOMBO, April 8 Sri Lanka may need new measures
including higher deposit rates and help for the elderly before
reducing interest rates further in a lower inflation
environment, the island nation's central bank head said on
The $67 billion economy has already reduced its key monetary
policy rates by between 125-175 basis points to multi-year lows
between December 2012 and January 2014 to boost credit growth
and sluggish growth.
"The reduction in the interest rate has become a challenge,"
Central Bank Governor Ajith Nivard Cabraal told a gathering for
the release of the bank's 2013 annual report.
"Without new strategies for elders who are depending on the
interest income to get a higher income, we can't reduce the
interest rate to necessary levels despite lower inflation."
Cabraal said the prevailing conditions and the interest
rates the central bank was maintaining were "appropriate".
Annual inflation has been in single digits for almost last
five years. It was steady at a 25-month low of 4.2 percent
year-on-year in March.
The repurchase rate and the reverse repurchase rate are at
6.50 percent and 8.00 percent respectively, both at multi-year
lows. Short-term government securities have also been hovering
between 6.64-7.05 percent.
However, private sector credit growth has been sluggish
despite declining interest rates. In January, it grew 5.2
percent year-on-year, the slowest expansion since May 2010. In
December, credit was 7.5 percent higher than a year earlier, and
in January 2013, annual expansion was 15.5 percent.
Cabraal said he expected credit growth to pick up towards
the second half of the year.
The economy expanded 7.3 percent last year, from a 6.3
percent the previous year. The central bank estimates 7.8
percent growth this year.
(Reporting by Shihar Aneez and Ranga Sirilal; Editig by Robert