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By Shihar Aneez
COLOMBO, March 10 Sri Lanka's benchmark interest
rates will remain steady for the next 2-3 months, Treasury
Secretary P.B. Jayasundera said on Monday, downplaying
expectations of further near term monetary easing despite weak
private sector credit growth.
The central bank has maintained an easing bias on monetary
policy since December 2012 as it sought to bolster growth and
boost demand. It cut both the repurchase rate and the reverse
repurchase rate by 125 basis points (bps) each in the 11 months
between December 2012 and October 2013.
In January, the central bank reduced reverse repurchase rate
by a further 50 bps. Both key rates are at multi-year lows.
However, banks have repeatedly said that private sector
credit growth is sluggish despite the loose monetary conditions.
Private sector credit growth edged up to 7.5 percent in December
from 7.3 percent in the previous month, but was still well below
the 35 percent growth rate of 2011.
"No adjustment will take place in the next 2-3 months,"
Jayasundera told Reuters when asked if the monetary authorities
are considering any further downward adjustments to the interest
rates to boost faltering credit and economic growth.
"Let the banks develop good customers and loan portfolio. It
takes time," said Jayasundera, the top technocrat in President
Mahinda Rajapaksa's government.
The $67 billion economy is targeting 7.8 percent economic
growth this year, picking up from the last year's estimated
growth of 7.2 percent with inflation expected in the 4-6 percent
range by end of this year.
The central bank's rate cuts since December 2012 have failed
to sufficiently spur private sector credit growth, with the
economy largely motoring on major state-led infrastructure
Danushka Samarasinghe, the head of TKS Securities research
said large urban middle class isn't taking advantage of the low
interest rate environment because of "concerns of their
disposable income level."
Economists have said that Sri Lanka's inconsistent
investment and economic policies in the past have hit investor
sentiment, hindering foreign direct investments despite an end
to a 26-year civil war in 2009.
Higher taxes on essential goods have also reduced
consumers' spending power, further hurting credit growth.
(Reporting by Shihar Aneez; Editing by Shri Navaratnam)