No change in interest rates by Sri Lanka’s Central Bank

There is no change in interest rates, the Central Bank announced on Tuesday after a meeting of the Monetary Board was held on Monday January 18 where the monthly economic developments were discussed.

The statement said that the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 per cent and 5.50 per cent, respectively. The board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts.

“The board, having noted the reduction in overall market lending rates during 2020, stressed the need for a continued downward adjustment in lending rates to boost economic growth in the absence of demand driven inflationary pressures, particularly considering the significant levels of excess liquidity prevailing in the domestic money market,” the bank said.

The spread of COVID-19 has weighed on Sri Lanka’s growth prospects in 2020, but the outlook for 2021 remains positive, it said

As per the GDP estimates published by the Department of Census and Statistics (DCS), the Sri Lankan economy, which contracted by 1.7 per cent and 16.3 per cent in the first and second quarters of 2020, respectively, rebounded in the third quarter of 2020 and recorded a growth of 1.5 per cent.

“However, the onset of the second wave of COVID-19 is expected to have dampened the momentum in the fourth quarter of 2020. Accordingly, the economy is expected to have contracted by around 3.9 per cent in 2020. Nevertheless, the economy is well poised to rebound in 2021, supported by the unprecedented policy stimulus measures introduced by the Government and the Central Bank, improved domestic economic sentiments, alongside the improving prospects of the global economy,” it said.

Workers’ remittances have grown by 5.8 per cent to US dollars 7.1 billion in 2020, with a historic high level of remittance receipts in December 2020.

“With these developments, the external current account deficit is estimated to have narrowed substantially in 2020. Measures taken by the Government to promote exports of goods and services are expected to buttress the external sector in 2021. Reopening the country for tourist arrivals under strict health guidelines could help improve external sector conditions in the period ahead. Gross official reserves were estimated at US dollars 5.7 billion at end 2020, with an import cover of 4.3 months. Amidst hostile global market conditions, the Government and the Central Bank continued to explore avenues of financial flows to the country, while discussions with domestic and foreign counterparts in this regard have made notable progress,” the statement said.

Headline inflation, based on the Colombo Consumer Price Index (CCPI), remained mostly within the targeted range of 4-6 per cent during 2020. CCPI based core inflation remained low reflecting subdued aggregate demand pressures in the economy. Meanwhile, headline and core inflation, based on the National Consumer Price Index (NCPI), also remained at subdued levels particularly towards end 2020. With the pandemic induced weak global and domestic economic conditions, inflation is expected to remain low in the near term.