Central Bank further cuts SL interest rates

The Monetary Board of the Central Bank of Sri Lanka, at a special meeting on Wednesday (May 6) has decided to further cut interest rates to induce economic activity, whiile warning that stiff action would be taken if the banking industry doesn't respond by reducing interest rates. This is believed to be the third interest rate cut since the COVID-19 pandemic hit Sri Lanka.

According to a statement issued by the Central Bank, the Monetary Board, at a special meeting, reviewed the current monetary policy stance and decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points to 5.50 per cent and 6.50 per cent, respectively, effective from the close of business on May 6. 

“The Board arrived at this decision considering the necessity to further support the economy to weather the adverse economic impact caused by the COVID-19 pandemic, given subdued inflationary pressures,” it said. 
With this decision, policy interest rates of the Central Bank have been reduced by 150 basis points thus far in 2020, in addition to the other measures taken to ease monetary conditions in the market. The Monetary Board noted, with disappointment, that market lending rates have not declined in line with the series of measures taken to ease monetary policy and monetary conditions thus far during the year. 
“Therefore, financial institutions are urged to reduce lending rates without further delay, failing which, the Central Bank will be compelled to take appropriate regulatory action to bring down market lending rates,” the statement said.