Sri Lanka central bank brings down policy rate 100bp to 10-pct.
By: Staff Writer
Colombo (LNW): Sri Lanka’s central bank has brought down its policy rate at which money is injected in to the banking system to 10 percent, and the lower corridor to 9 percent in a monetary policy meeting in November.
The Board viewed that with this reduction of policy interest rates, along with the monetary policy measures carried out since June 2023, sufficient monetary easing has been effected in order to stabilize inflation over the medium term,” the CB statement said.
“Hence, the Monetary Policy Board underscored the need for a swift and full passthrough of monetary easing measures to market interest rates, particularly lending rates, by the financial institutions, thereby accelerating the normalization of market interest rates in the period ahead.”
“The Board anticipates a swift, sizeable and broad-based reduction in overall market lending interest rates in line with the monetary policy easing measures effected since June 2023,” the statement said.
“Such adjustment in interest rates is imperative to ease the domestic monetary conditions further.
“The Board stressed the need for all licensed banks to take swift measures to reduce market lending interest rates to ensure that the benefits of the series of monetary policy easing measures are adequately passed on to businesses and households.”
Sri Lanka’s private credit has been slightly positive in recent months in October the central bank was still a net buyer in forex markets with broadly deflationary policy involving selling down its Treasuries stock to the banking system.
Policy rates enforced with inflationary open market operations amid a recovery in private credit in the past on the claim that inflation was low has led to renewed balance of payments deficits.
It has missed IMF reserve targets, currency depreciation which push up food and energy prices leading to the ouster of incumbent administrations, analysts have pointed out.
In January value added tax is to be hiked further, which can reduce pressure on the credit system though state salary hikes are kicking in from April.
Food inflation continued to be negative (year-on-year) for the fourth consecutive month in October 2023. The National Consumer Price Index (NCPI, 2021=100) based headline inflation (year-on-year) was recorded at 1.0 per cent in October 2023 compared to 0.8 per cent in September 2023.
Both CCPI and NCPI based core inflation (year-on-year), which reflects underlying demand pressures in the economy, moderated further in October 2023, reflecting the subdued demand pressures in the economy.