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Sri Lanka central bank holds policy rates

The Central Bank of Sri Lanka maintained its policy rates as it flagged potential upward pressure on inflation in the near term.

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

The bank's monetary board said the decision "is consistent with stabilizing inflation at mid-single-digit levels in the medium term, thereby contributing to a favorable growth outlook for the Sri Lankan economy." Annual headline inflation rose to 4.4% in June from 4.0% in May, while core inflation increased to 3.4% from 3.2%.

The bank expects inflation to remain in the mid-single-digit levels for the rest of 2018 and over the medium term, supported by "firmly anchored" inflation expectations and policy adjustments. However, the level of domestic food supplies during the off-season could put short-term upward pressure on inflation.

Sri Lanka's economy grew 3.2% year over year in the first quarter of 2018 compared with a revised annual 3.3% growth rate in 2017 due to strong activity in services and agriculture, the bank said. It added that medium-term growth will likely be underpinned by state-led structural reforms, a sustained rebound in the global economy, low inflation and an "appropriately valued" flexible exchange rate.