Sri Lanka's central bank on Tuesday held interest rates steady as expected but upped commercial banks' deposit requirement to 8 percent from 7 percent to try and ease potential demand-side inflation. The central bank's first move to cut excess liquidity by increasing the statutory reserve ratio (SRR) comes as annual inflation hit a 26-month high of 8.6 percent in March, which the central bank attributed mainly to food supply disruption after flooding hit crops hard.
"The Monetary Board considers it prudent to pull back any build-up of demand-side pressure on inflation and ensure continued monetary stability," the central bank said in its monthly monetary policy report. The central bank also held repurchase and reverse repurchase rate at 7.00 percent and 8.50 percent respectively, in line with a Reuters poll. The central bank used SRR as a tool to ease monetary policy for the first time in November 2008, and has since reduced policy rates by 350 basis points.
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