BM Desk:

In an effort to stabilize inflation and boost economic growth, the Central Bank of Sri Lanka has decided to lower its key interest rates. The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) have been reduced by 100 basis points each, bringing them to 9.00 percent and 10.00 percent, respectively, according to a statement issued on Friday.

The central bank’s monetary policy board made the decision following a careful analysis of the current and expected developments in the domestic and global economy. The goal is to achieve and maintain inflation at the targeted level of 5 percent over the medium term while enabling the economy to reach and stabilize at its potential level.

The board acknowledged that supply-side factors stemming from expected developments domestically and globally could pose near-term upside risks to inflation projections. However, they concluded that these near-term risks would not significantly alter the medium-term inflation outlook, as public inflation expectations remain anchored and economic activity is projected to remain below par in the near to medium term.

The central bank stated that with this reduction of policy interest rates, along with the monetary policy measures implemented since June 2023, sufficient monetary easing has been effected to stabilize inflation over the medium term.

Sri Lanka significantly raised interest rates in 2022 to combat rising inflation. However, rates have been lowered multiple times in 2023 to stimulate economic growth.