Sri Lanka cenbank stands pat on rates, to set lending targets

The bank maintained the standing deposit facility rate and the standing lending facility rate at 4.50% and 5.50%

  
People walk past the main entrance of the Sri Lanka's Central Bank in Colombo, Sri Lanka March 24, 2017.

People walk past the main entrance of the Sri Lanka's Central Bank in Colombo, Sri Lanka March 24, 2017.

Reuters/Dinuka Liyanawatte

MUMBAI - Sri Lanka's central bank kept its key interest rates unchanged on Thursday, but said it would introduce lending targets for certain sectors "in the near future", as it stressed upon the need for lower lending rates to boost economic growth.

The Central Bank of Sri Lanka (CBSL) said its accommodative monetary policy stance would continue and that it will introduce a limit on the maximum interest rate that can be charged on mortgage-backed housing loans for salaried workers.

The bank maintained the standing deposit facility rate and the standing lending facility rate at 4.50% and 5.50%, respectively. The statutory reserve ratio was also left unchanged at 2%.

CBSL said the second wave of COVID-19 infections globally have adversely affected the momentum of domestic economic recovery that was seen in the third quarter of 2020, but the impact of containment measures is not expected to be massive.

"Despite this disturbance to the near-term growth prospects, the economy is expected to rebound strongly in 2021 and sustain its growth momentum over the medium term," it said.

CBSL said subdued underlying demand pressures have kept inflation within the targeted range of 4% to 6%, while core inflation has also remained low.

The bank said it has set a maximum limit of 7% per annum on mortgage-backed housing loans, obtained by salaried employees from licensed banks, at least for the first five years of the loan tenure.

The remaining tenure is to be charged at the monthly average weighted prime lending rates plus a margin of up to 1 percentage point.

"The momentum of credit disbursement to the private sector rests on the speed of containment of the second wave of COVID-19 and its impact on domestic economic activity," the bank cautioned.

(Reporting by Swati Bhat; Editing by Shri Navaratnam and Sherry Jacob-Phillips) ((swati.bhat@thomsonreuters.com; twitter.com/swatibhat22; +91-22-68414381; Reuters Messaging: swati.bhat.thomsonreuters.com@reuters.net))

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