The Central Bank of Sri Lanka will reduce its repurchase rate by 25 basis points and the reverse repurchase rate by 50 basis points to 7 per cent and 8.50 per cent, respectively, with effect from Tuesday.

This was decided at a meet of the bank's Monetary Board on January 10.

In the board's assessment, current monetary trends did not stress the economy unduly despite seasonal price increases. Also, the Sri Lankan rupee has been relatively stable, cushioning price increases of imported commodities, on which Sri Lanka relies on to a large extent.

On Tuesday, the dollar buying rate, quoted by the bank, was 110.10 against 110.13 a week ago, on January 4. The selling rate has been steady at 111.83. This sentiment, however, is not reflected across businesses. There has been some panic selling of the dollar, newspaper reports said.

Import tariffs

The government too had reduced tariffs applicable to imported commodities, to reduce price pressures further. The bank expects agricultural production to pick up and increased capacity utilisation in many sectors of the economy.

Also, the country's budget deficit is expected to be well within the targeted 8 per cent of GDP in 2010. Meanwhile, the government remains committed to securing a budget deficit of 6.8 per cent of GDP in 2011 with current indications showing that such deficit target is very likely to be achieved, it said.

Given the stable macroeconomic environment, the bank wants to facilitate private sector participation in economic activity. Towards this end, a reasonable relaxation of the central bank's monetary policy stance would be appropriate and timely, it reasoned.

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