Sri Lanka should keep monetary policy on hold for the moment to build on economic stability based on low inflation, an International Monetary Fund official said.
“We would stay on hold now,” IMF resident Koshy Mathai told reporters in Colombo after an annual Article IV consultation report was submitted to its board.He said the Central Bank has kept inflation at single digits for a long time, but “building on that success was very important” because the ultimate goal was to improve beyond single digit inflation.
Low inflation allows people to engage in economic activities in a stable environment.
Sri Lanka’s inflation fell to 6.4 percent in the 12 months to April from 7.5 percent in March.
Sri Lanka’s central bank is following a type of ‘quantity tightening’ at the moment where its Treasury bill stocks is sold down to withdraw liquidity from the market at rates of around 8.7 percent.
Effective overnight policy rates are around 8.3 percent at which rate excess liquidity is sterilized overnight.