The Central Bank of Sri Lanka cut policy rates by 50 basis points, pushing its repurchase rate to 6.50 percent and the reverse repurchase rate to 8.50 percent to boost credit amid a volatile global environment, Xinhua reported Tuesday citing a bank statement.
Recent growth forecasts for advanced economies and emerging market economies have raised concerns regarding the global economic recovery, Sri Lanka's Central Bank observed.
The heightened uncertainty arising from the delay in announcing tapering of the quantitative easing by the US Federal Reserve, coupled with the current political impasse experienced by the US, resulting in a government shutdown and inability to increase the debt ceiling has also increased market volatility.
"Going forward, the inflation outlook continues to remain favourable with restrained international commodity prices, reduced domestic supply side pressures, and well contained demand driven inflationary pressures," the Central Bank said.
"Broad money growth for August 2013 was in line with projections for the year, indicating that the current monetary conditions could support higher growth in the second half of 2013."
Continued inflows from bond sales, reduction in trade deficit and controlled inflation were given as reasons by the Central Bank for its decision to reduce policy rates.
More From This Section
During the year, the conduct of monetary policy has been aimed at providing the necessary impetus to allow for economic growth to accelerate, in the absence of demand pressures, the organisation noted.
In that context, the policy easing in December 2012 and May 2013 reduced the borrowing costs of economic agents gradually, thereby encouraging private sector investments.
"These policies have strengthened the macroeconomic environment which is likely to enable the economy to comfortably exceed a GDP growth rate of 7 percent in 2013."
The Central Bank has projected 7.5 percent growth for this year.
However, the International Monetary Fund (IMF) together with the Asian Development Bank (ADB) has projected a growth of 6.8 percent in the island nation.