The Central Bank of Sri Lanka announced its decision to maintain the current policy interest rates during a recent meeting held yesterday (23). The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will remain at 11.00 per cent and 12.00 per cent, respectively.
The Monetary Board’s decision comes as the country’s economy shows signs of recovery. The Central Bank noted that the significant monetary easing implemented since June 2023 had led to a reduction in market interest rates. However, certain lending products exhibited higher interest rates that were not in line with the prevailing monetary policy stance. In response, the Board decided to introduce targeted administrative measures to lower specific lending interest rates and encourage licensed banks to reduce overall rupee lending interest rates.
In terms of inflation, the Central Bank reported a positive trend, with headline inflation reaching single-digit levels for the first time since November 2021. The moderation in inflation was attributed to decreased energy and food inflation, as well as favorable statistical effects. The Central Bank expects inflation to continue moderating in the coming months, stabilizing around mid-single digit levels in the medium term.
While market interest rates have responded to the recent easing measures, the Monetary Board noted disparities in the adjustment of lending and deposit interest rates. To address this, the Board introduced interest rate caps on pawning facilities, pre-arranged temporary overdrafts, and credit cards, aimed at fostering balanced lending practices.
The decision to maintain policy interest rates reflects the Central Bank’s cautious approach in balancing economic recovery with inflation management. As Sri Lanka’s economic activity is projected to gradually recover in the latter half of 2023, the Central Bank’s measured stance aims to ensure sustained growth while maintaining stable economic conditions.