The board felt the need for a further reduction in market lending interest rates in line with policy interest rates and other benchmark interest rates, which is imperative for the easing of domestic monetary conditions and domestic economic recovery, a press release from the central bank said.

Headline inflation, as measured by the year-on-year (YoY) change in the Colombo consumer price index, rose to 1.5 per cent in April this year compared to 0.9 per cent in March, mainly due to an acceleration in non-food inflation. However, on a month-on-month basis, both food and non-food prices declined.

Core inflation, which reflects underlying demand pressures in the economy, also remained at subdued levels reflecting low demand pressures in the economy.

The yields on government securities continued to decline, further aligning with the current level of policy interest rates.

With the decline in average deposit interest rates in the banking sector in recent months along with the moderation of benchmark interest rates, further space has been created for overall lending interest rates to adjust downwards in the period ahead, the central bank release noted.

Flows of credit to the private sector have recorded only a marginal expansion thus far during the year, in spite of the notable monetary policy easing and the improvement in overall liquidity conditions.

A further reduction in retail lending interest rates could facilitate the pickup in private sector credit, thereby supporting the ongoing recovery of economic activity, it said.

As domestic economic activity gathered momentum in recent months, the cumulative merchandise trade deficit is expected to have widened during the four months ending April 2024 compared to the same period in 2023, it added.

Fibre2Fashion News Desk (DS)