The bank also said it would act if necessary to contain monetary expansion, after private sector credit growth spurred broad money supply growth of a record 20.7 percent year-on-year in July.

The repurchase rate was left at 7.00 percent and the reverse repurchase rate at 8.50 percent, in line with a Reuters poll.

The bank also left the Statutory Reserve Ratio (SRR) for commercial banks unchanged at 8 percent as expected.

“Although commodity prices have continued to remain elevated in international markets, improved domestic supply conditions and the stability of the Sri Lanka rupee have helped contain domestic inflation,” the bank said in a statement.

Private sector credit growth hit a 16-year high of 34.4 percent in June year-on-year, though the rapid expansion was partly due to a low base in the previous year.

But the central bank expects a slowdown of credit and monetary expansion in coming months with the moderation of world economic activity and the slowing down of both advanced economies and emerging economies.

“Nevertheless, if warranted, appropriate monetary policy action would be taken to contain monetary expansion, going forward,” the central bank said.  

The $50 billion economy expanded by 8 percent in the first half of 2011, with the service and industrial sectors leading the way. Government data released on Thursday showed 8.2 percent growth in the second quarter.

“The central bank will take steps to contain the credit growth but I don’t think it’s really by increasing interest rates. They’ll probably try to persuade the banks to ease off on certain sectors that are not productive,” said Amal Sandaratne, an economist at Frontier Research.  

The island nation is targeting full-year expansion of a record 8.5 percent after 2010’s 8 percent, the highest level in 32 years. Sri Lanka expects annual inflation, which declined to 7.0 percent in August from 7.5 percent in July, to slow to 6 percent by the end of 2011.