The Central Bank of Sri Lanka left its Standing Deposit Facility Rate (SDFR) at 6.50 percent and the Standing Lending Facility Rate (SLFR) at 8.0 percent. In January the central bank rejigged its policy framework with the SDRF rate replacing the previous benchmark repo rate.
The central bank embarked on an easing cycle in December 2012 and has cut the repo rate by a total of 125 basis points, most recently in October 2013. The Statutory Reserve Requirement (SRR) on rupee deposits has also been reduced by 2 percentage points during the easing cycle.
"Responding to the eased monetary policy stance, both market lending and deposit interest rates have adjusted downwards substantially, although there is further room for downward adjustment in long term lending rates," the central bank said.
Credit extended by banks to the private sector rose by 7.6 billion rupees in March with an increase of 15.3 billion in credit extended to the private sector from domestic banking units while repayments by BOI companies to offshore banking units dampened overall credit growth, the central bank said.
"The sharp decline in pawning advances contributed largely to the continued low growth of credit to the private sector," the bank said, adding its monetary board had approved the implementation of a credit guarantee scheme on pawning advances on behalf of the government in order to counter the effects of the continued decline in pawing advances on the productive sectors of the economy.
The central bank cut its rates since December 2012 due to benign inflation and the bank said the outlook for inflation remains favorable.
Sri Lanka's headline inflation rate rose to 4.9 percent in April from 4.2 percent in March - well within the central bank's 2014 target of 4-6 percent - while core inflation was steady at 3.4 percent.
The central bank said it expects inflation to remain benign in the months ahead although weather-related supply disruptions could cause some "marginal variation" in some food items.
In 2015 and 2016 the central bank will target inflation of 3-5 percent.
The central bank noted that Sri Lanka's trade deficit contracted by nearly 12 percent in the first quarter, boosted by high export volumes in March, with export earnings up by 28.6 percent year-on-year, surpassing US$ 1 billion.
"Further, the outlook for export earnings remains positive on account of the firming up of the recovery in advanced economies," the bank said.
Inflows from workers' remittances also rose strongly in March while earnings from tourism also rose in the first four months, with tourist arrivals surpassing the half-million mark in the first four months.
End-March, gross official reserves were $8.1 billion and since then reserves have risen further due to the proceeds from the seventh sovereign bond issued in April.
Sri Lanka's economy expanded by 7.3 percent in 2013, up from 6.3 percent in 2012 and the central bank has forecast growth of 7.8 percent for 2014.