The Central Bank (CB) on Thursday decided not to change policy interest rates, after a meeting of the regulator’s Monetary Board the previous day.
It was decided at the March 4 meeting to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 6.50 per cent and 7.50 per cent, respectively, and thereby continue its accommodative monetary policy stance, the CB said in a public announcement.
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“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.
Sri Lanka’s economic links with China could be directly affected as significant volumes of consumer goods, intermediate goods and investment goods are imported from China.
The likely slowdown of the global economy and disruptions to the supply chain could affect Sri Lanka’s merchandise and service exports as well as related logistics.
The slowdown in global tourist movements will affect Sri Lanka’s tourism sector, in addition to the direct impact of lower arrivals from China.
The spread of the virus to countries with a significant number of Sri Lankan migrant workers could affect remittance inflows as well.
These adverse implications are likely to outweigh any marginal benefit arising from reduced global energy prices and international interest rates.
“A notable improvement was observed in the external current account balance in 2019, with the trade deficit contracting significantly as a result of a sharp decline in the growth of imports and a marginal growth of exports.
The tourism sector witnessed a faster than expected recovery in 2019 following the Easter Sunday attacks. Yet, the COVID-19 outbreak is likely to pose challenges to the tourism sector in the period ahead.
Workers’ remittances that moderated in the first 11 months of 2019, showed an improvement in December 2019 as well as January 2020..
(LI)