Sri Lankan central bank further reduces policy interest rates

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Colombo, Sri Lankan.

The monetary board of the Sri Lankan central bank had decided to reduce the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 100 basis points.

The rate should be by 100 basis points to 10.00 per cent and 11.00 per cent, respectively, it said in a statement on Thursday.

Central Bank of Sri Lanka said it took this decision at the monetary board meeting held on Wednesday.

The central bank said the monetary board arrived at this decision following a careful analysis of the current and expected developments.

The development included low inflation and benign inflation expectations in the domestic economy, with the aim of stabilising inflation at the envisaged 5 per cent level.

The medium term thereby help to enable the economy to reach its potential growth.

The monetary board expects that this reduction of policy interest rates, along with the significant easing of monetary policy previously, included the directions issued by the central bank to licensed banks.

To help 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 financial sector is urged to pass on benefits of the continued easing of monetary conditions to individuals and businesses adequately and swiftly, thereby supporting the envisaged rebound of the economy, said the central bank.

Colombo Consumer Price Index (CCPI)-based headline inflation (year-on-year) decelerated significantly below the target to 1.3 per cent in September driven by declines in both food and non-food inflation, it said.

Sri Lanka increased its interest rates significantly in 2022 to deal with rising inflation.

The rates were reduced twice in 2023.

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