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Sri Lanka central bank holds policy rates as inflation eases

The Central Bank of Sri Lanka on May 10 maintained its policy rates as headline inflation reached low single-digit levels amid favorable domestic supply conditions.

The bank kept the standing deposit facility rate at 7.25%, the standing lending facility rate at 8.50% and the statutory reserve ratio at 7.50%.

While inflation is expected to temporarily rise in the short term due to price increases of petroleum products, liquefied petroleum gas and milk powder, it is expected to stabilize in the mid-single digits in the second half. Inflation is expected to remain within the 4%-6% target range over the medium term, the bank said.

The bank foresees economic growth to post a "moderate" recovery in 2018 on the back of a modest growth in the agricultural sector. Fiscal consolidation measures may dampen prospects but macroeconomic benefits from fiscal discipline will ensure growth over the medium term.