Sri Lankan Central Bank Further Reduces Policy Interest Rates

The Sri Lankan central bank on Thursday said that its monetary board has decided to reduce the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 200 basis points to 11.00 per cent and 12.00 per cent, respectively.

The central bank said it took this decision at the monetary board meeting conducted on Wednesday, reports Xinhua news agency.

The board arrived at this decision following a careful analysis of the current and expected developments, including the faster-than-envisaged disinflation process and benign inflation expectations in the domestic economy, with the aim of enabling the economy to reach its potential and stabilizing inflation at mid-single-digit levels in the medium term, while easing pressures in the financial markets, the statement said.

The board expects that with this reduction of policy interest rates by 200 basis points, and the reduction of policy interest rates by 250 basis points in early June 2023, along with the significant reduction of risk premia on government securities witnessed recently, the market interest rates, particularly lending rates, will adjust downwards adequately and swiftly, said the central bank.

Therefore, the banking and financial sector is urged to pass on the benefits of this significant easing of monetary policy by the central bank to individuals and businesses, thereby supporting economic activity to rebound in the period.

Sri Lanka increased its interest rates significantly in 2022 to deal with rising inflation.