Sri Lanka's central bank maintained its policy rates, as expected, and said the significant decline in international and domestic energy prices along with a continued deceleration in other key commodities is likely to result in inflation remaining at a lower rate than the previously forecast range of 4-5 percent in the period ahead.
The Central Bank of Sri Lanka, which has kept rates steady since October 2013, also said market rates are at historic low but there is room for these to fall in light of the low inflation environment.
Credit extended to the private sector by commercial banks rose by 47.7 billion Sri Lankan rupees in August, "indicating a turnaround in the behavior of bank credit," the central bank said, adding that credit disbursements should to the private sector from commercial banks should continue to grow given expanding economic activity and relatively low market interest rates.
Sri Lanka's headline inflation rate was steady at 3.5 percent in September while core inflation decelerated to 3.7 percent from 3.9 percent in August.
The central bank targets inflation of 4-6 percent this year and 3-5 percent in 2015 and 2016.
So far this year, the rupee has appreciated by 0.14 percent against the U.S. dollar, the central bank said, with gross official reserves at $US 8.7 billion as of Oct. 13, down from $9.2 billion on Aug. 8. The central bank's aim is to boost reserves to $10 billion by the end of this year.
The central bank held its Standing Deposit Facility Rate (SDFR), which has replaced the repo rate as a benchmark, steady at 6.50 percent and the Standing Lending Facility Rate (SLFR) at 8.0 percent.