Sri Lanka’s Central Bank reduces market interest rates

Sri Lanka’s Monetary Policy Board decided to reduce the Overnight Policy Rate (OPR) by 25 bps to 7.75 per cent at its meeting held yesterday, thereby easing monetary policy further.

The Board arrived at this decision after carefully considering the developments both domestically and globally. The Board was of the view that this measured easing of monetary policy stance will support steering inflation towards the target of 5 per cent, amidst global uncertainties and current subdued inflationary pressures, the Central Bank said in a media release.

Meanwhile, most market interest rates have stabilised at lower levels. With the current policy easing, the Board expects further downward adjustments in lending rates. Credit flows to the private sector remain strong with key economic sectors benefitting from such expansion. This credit expansion is expected to continue throughout the year, with further support from the latest easing.

Thus far during the year, the external sector performance remains robust. This is supported by inflows in the form of earnings from tourism and workers’ remittances, despite the widening of the trade deficit. Continued net forex purchases by the Central Bank helped strengthen the official reserves amidst debt servicing and other forex outflows. The Sri Lanka rupee recorded some depreciation against the US dollar so far during the year, following two years of annual appreciation against major currencies.

The Board will carefully assess incoming data on the domestic and global fronts and take measures, as appropriate, to ensure that inflation stabilises around the target of 5 per cent, while supporting the economy to reach its potential. The release of the next regular statement on the monetary policy review will be on July 23.