Central Bank of Sri Lanka further reduces policy interest rates
By: Staff Writer
July 25, Colombo (LNW): The Central Bank of Sri Lanka has further reduced the policy interest rates after assessing the current and expected macroeconomic developments.
The Monetary Policy Board of the Central Bank of Sri Lanka has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 25 basis points (bps) to 8.25 per cent and 9.25 per cent, respectively.
The Board arrived at this decision following a careful assessment of the current and expected macroeconomic developments and possible risks and uncertainties on the domestic and global fronts with a view to maintaining inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach its full capacity.
In arriving at this decision, the Board considered the need to signal the continuation of the eased monetary policy stance, thereby inducing a further reduction in market lending rates to support economic activity, amidst a benign inflation outlook.
The Board noted that, based on the available information, inflation is likely to remain below the inflation target of 5 per cent by a sizeable margin for the next several months before aligning with the targeted level over the medium term.
The bank said that the Sri Lankan economy expanded for the third consecutive quarter in Q1 2024, with a year-on year real growth of 5.3 per cent, as per the estimates of the Department of Census and Statistics (DCS).
The latest economic indicators suggest that real GDP growth in Q2 2024 also has been robust. The rebound in domestic economic activity is expected to sustain, buoyed by the transmission of relaxed monetary policy to broader market interest rates, enhanced supply conditions, the gradual rebound in external demand conditions, revival of tourism, and the dissipation of uncertainties surrounding debt restructuring.
The economy, which operates below its full capacity presently, is forecast to reach its potential over the medium term horizon.
The bank also said that while the external current account is likely to have recorded a surplus in the first half of the year, the cumulative merchandise trade deficit widened during this period compared to the same period in 2023. Earnings from tourism and workers’ remittances continued to be promising.
Gross Official Reserves (GOR) stood at US dollars 5.6 billion (including the swap with the People’s Bank of China) as of end June 2024, compared to US dollars 4.4 billion at end 2023.
Meanwhile, the Sri Lanka rupee witnessed intermittent volatility against the US dollar in recent months.
Overall, the Sri Lanka rupee appreciated by over 6.5 per cent against the US dollar thus far during 2024.
