Sri Lanka Cuts Key Interest Rates By 50 Bps

(RTTNews) - Sri Lanka's central bank unexpectedly reduced its benchmark rates on Tuesday to support the economic recovery.

The Monetary Policy Board of the Central Bank of Sri Lanka, led by Governor Nandalal Weerasinghe, decided to cut the Standing Deposit Facility Rate by 50 basis points to 8.50 percent and the Standing Lending Facility Rate to 9.50 percent.

The bank had reduced rates by a cumulative 650 basis points in 2023.

"The Board was of the view that a further easing of monetary policy would provide the required space for market interest rates, particularly lending rates, to adjust downwards further to levels conducive to continued expansion of credit to the private sector, thus supporting the ongoing revival of economic activity," the bank said in the statement.

The board observed that the possible upside risks to inflation in the near term would not materially change the medium-term inflation outlook, as economic activity is projected to remain below par for an extended period.

Further, policymakers highlighted the need for a swift and full pass through of monetary easing measures to market interest rates and thereby accelerating the normalization of market interest rates in the coming period.

In February, headline inflation decelerated to 5.9 percent in February from 6.4 percent in January. Headline inflation is forecast to moderate in the forthcoming months and eventually converge to the targeted level in the period ahead.

Last week, the International Monetary Fund staff and the Sri Lankan authorities reached an agreement on economic policies. Once approved by the IMF, Sri Lanka will have access to US$337 million in financing from the US$3 billion bailout package.