Sri Lanka’s central bank left its key interest rates unchanged on Thursday following an unexpected uptick in retail inflation but maintained its accommodative stance, highlighting the risks from the coronavirus epidemic.
The Central Bank of Sri Lanka retained the standing deposit facility rate and the standing lending facility rate at 6.50% and 7.50%, respectively. The statutory reserve ratio was also left unchanged at 5%.
“The latest projections indicate that inflation would decline in the near term and stabilise within the desired range thereafter,” the central bank said.
Apart from the direct impact on imports from China, the regulator said the outbreak would have spillover effects on the tourism sector, a key source of foreign currency.
“The exact impact on the Sri Lankan economy would depend on the extent of the global spread of the COVID-19 outbreak, its persistence and policy responses of major economies and trading partners,” the central bank said.
The spread of the virus to countries with significant numbers of Sri Lankan workers could affect remittances, it said.
The virus, which first emerged in the central Chinese city of Wuhan late last year, has spread around the world, with more new cases now appearing outside China than within it.