Sri Lanka's central bank said it was holding its key policy rate at which money is injected to the economy at 9.75 percent and the rate at which money is drained at 7.50 percent to support credit growth, despite a pick up in inflation.
"Prospects for domestic economic activity have improved with the more favourable investment climate that now p
revails and the gradual recovery of the world economy, supported by the relaxed monetary policy stance of the Central Bank," the monetary authority said."Hence, it is expected that credit flows will gradually pick up, with the more favourable credit conditions that prevail on account of the decline in market interest rates as well as the more stable conditions in financial markets."
The Central Bank said the outlook for inflation was "benign" though inflation in the 12-months to November picked up to 2.8 percent.
There have been rising concerns that inflation was being stoked up amid loose US monetary policy (the rupee is pegged to the dollar) and excess liquidity in the banking system.
Though money supply was expanding, the Central Bank said it was within targets.
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