A higher petroleum import bill and the inadequate adjustment to domestic petroleum prices led to increased borrowings by the state owned Ceylon Petroleum Corporation last month, the Central Bank said today.
The Bank also said that Sri Lanka recorded a further drop in inflation in January as a result of improvements in domestic food supplies.
The bank said year-on-year inflation declined to 3.8 per cent in January from 4.9 per cent in December 2011. This is the 36th consecutive month with single digit inflation, the Bank said.
The Bank also decided to increase its interest rates for the first time since 2007. The Monetary Board of the bank had decided to increase both the Repurchase rate and the Reverse Repurchase rate of the Central Bank by 50 basis points each.
Hence, the Repurchase rate and the Reverse Repurchase rate of the Central Bank will be 7.50 per cent and 9.00 per cent, respectively.
The bank also said that credit granted to government and public corporations by Sri Lankan commercial banks increased considerably, and in particular, a higher petroleum import bill and the inadequate adjustment to domestic petroleum prices led to increased borrowings by the state owned Ceylon Petroleum Corporation.
The Monetary Board also decided to direct Sri Lankan commercial banks to moderate their credit disbursements so that the overall credit growth in 2012 will not exceed 18 per cent of their respective loan book outstanding at the end of 2011, while credit growth of up to 23 per cent will be allowed for those banks, which finance the excess up to 5 per cent of the credit growth, from funds mobilised from overseas.
The Monetary Board is of the view that these adjustments to the monetary policy stance of the Central Bank, as well as other measures that may be adopted by relevant Government authorities would materially reduce the need for the Central Bank to supply foreign exchange to the market, on a net basis, during 2012, the bank said.