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Sri Lanka central bank holds policy rates

The Central Bank of Sri Lanka maintained its policy interest rates, amid expectations that inflation will return to the "desired" level toward the end of the first quarter of 2018.

The standing deposit facility rate remained unchanged at 7.25% and the standing lending facility rate at 8.75%. The central bank also kept the statutory reserve ratio unchanged at 7.50%.

According to the provisional estimates of the Department of Census and Statistics, the economy grew by 3.3% year on year in the third quarter, compared to 4.0% in the second quarter.

Despite subdued near-term growth prospects, Sri Lanka's economy is expected to recover in 2018 on the back of surging exports, rising foreign direct investments and an agriculture sector rebound, the central bank said.

It projects that food supply disruptions could push up prices and keep headline inflation at "somewhat elevated" levels in the near term. Core inflation, meanwhile, has remained in check reflecting subdued demand pressures.

"Although some slippages in key fiscal balances in comparison to original estimates are expected in 2017 mainly as a result of expenditures related to relief measures and higher interest payments, fiscal consolidation is expected to continue in the medium term supporting macroeconomic stability," the central bank noted.