(LANKAPUVATH | COLOMBO) – The Monetary Board of Sri Lanka’s Central Bank has decided to reduce policy interest rates aiming to enable the economy to reach its potential as inflation declined faster than expected.
Accordingly, at the first monetary policy review by the Monetary Policy Board under the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA) on Thursday, the Board has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points (bps) to 10.00 percent and 11.00 percent, respectively.
The Board arrived at this decision following a careful analysis of the current and expected developments, including low inflation and benign inflation expectations in the domestic economy, with the aim of stabilizing inflation at the envisaged 5 percent level in the medium term, thereby enabling the economy to reach its potential growth, the Central Bank said in its monetary policy review released on Friday.
The Board expects that this reduction of policy interest rates, along with the significant easing of monetary policy effected previously, including the directions issued by the Central Bank to licensed banks to reduce interest rates, and the significant reduction of risk premiums on government securities, would accelerate the downward adjustment in market interest rates, particularly lending rates, in the period ahead.
The Board expects the domestic economic activity is expected to rebound gradually during the second half of 2023 and sustain the recovery over the medium term while the external sector is expected to remain resilient in the period ahead.
The Board anticipates a swift and sizeable reduction in overall market lending interest rates in line with the monetary policy easing measures.
The Central Bank urged the financial sector to pass on the benefits of the continued easing of monetary conditions to individuals and businesses adequately and swiftly, thereby supporting the envisaged rebound of the economy.
The Central Bank will continue to closely monitor the developments in market lending interest rates and review the administrative measures appropriately. The Monetary Policy Board will continue to assess risks to the inflation outlook, among others, and stand ready to take appropriate measures to maintain domestic price stability in the period ahead while supporting the economy to reach its potential.
