COLOMBO (NewsRadio); The Monetary Board of the Central Bank of Sri Lanka has decided to reduce policy interest rates by another 100 basis points.
This is the third rate cut by the Monetary Board after easing monetary conditions in the past few months.
The Central Bank said accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) have been reduced by 100 basis points to 10.00 per cent and 11.00 per cent, respectively.
The decision has been taken during the first monetary policy review by the Monetary Policy Board under the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA).
The Central Bank said the Monetary Policy Board arrived at the decision following a careful analysis of the current and expected developments, including low inflation and benign inflation expectations in the domestic economy, 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.
The CBSL said the Monetary Policy Board expects that the reduction of policy interest rates, along with the significant easing of monetary policy affected 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 Central Bank accordingly, has urged the financial sector 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.
Issuing a statement, the Central Bank said market interest rates, particularly lending rates, displayed noteworthy reductions in recent months as reflected by interest rate indicators.
The CBSL said however, considering the presence of excessive interest rates on certain lending products and the inadequate downward adjustment in market lending interest rates relative to those of deposits, caps on interest rates on selected lending products were imposed by the Central Bank in late August 2023.
Additionally, broader guidelines have been issued by the CBSL to induce a downward adjustment in overall market lending interest rates on rupee loans and advances in line with the relaxed monetary policy stance of the Central Bank.
The CBSL noted that the reduction in policy interest rates by 100 bps in this monetary policy review is expected to accelerate the reduction of market interest rates in the period ahead.
The Central Bank added that it will continue to closely monitor the developments in market lending interest rates and review the administrative measures appropriately.
