Sri Lanka Raises Banks’ Reserve Ratio to Keep Inflation in Check

Sri Lanka raised banks’ statutory reserve ratio for the first time since 2011, saying excess cash in the banking system threatens to fan inflation.

Governor Arjuna Mahendran increased the SRR to 7.5 percent from 6 percent, the Central Bank of Sri Lanka said in a statement Wednesday. He kept the standing lending facility rate at 7.5 percent and standing deposit facility rate at 6 percent, as predicted by all seven economists in a Bloomberg survey.

“It is appropriate to restrain the build-up of demand-side pressure on inflation to ensure continued monetary and price stability,” the central bank said. It also noted the rupee’s fall and a widening trade deficit.

Consumer price-gains accelerated to 3.1 percent in November, the fastest pace since January, even as growth slowed. A weakening currency after this month’s increase in U.S. interest rates heightens economic risks for the island nation.

Gross domestic product grew 4.8 percent in July-September after a 6 percent expansion the previous quarter. The rupee has dropped about 10 percent this year according to data compiled by Bloomberg -- it’s steepest fall since 2012 -- and touched a record low against the dollar.

The change in SRR will take effect from Jan. 16.

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