Central Bank further reduces policy interest rates to stabilise inflation

The Central Bank (CB) has further reduced its policy interest rates with the aim of stabilising inflation at the envisaged 5 per cent level in the medium term, thereby enabling the economy to reach its potential growth, a media release issued by the CB disclosed on Thursday.

The CB’s Monetary Policy 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 per cent and 11 per cent, respectively.

The first monetary policy review by the Monetary Policy Board under the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA) was held on Wednesday.

The decision to slash the SDFR and the SLFR was reached following a careful analysis of the current and expected developments, including low inflation and benign inflation expectations in the domestic economy.

The aim is to stabilise inflation at the envisaged 5 per cent level in the medium term, thereby enabling the economy to reach its potential growth, CB said.

The Monetary Policy 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 premia on government securities, would accelerate the downward adjustment in market interest rates, particularly lending rates, in the period ahead.

The financial sector has been urged 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.