Central Bank of Sri Lanka cuts key policy rates by 100 bps

The standing deposit facility rate and the standing lending facility rate were lowered to 9 per cent and 10 per cent respectively, said a CBSL statement.

The board’s aim is to maintain inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach and stabilise at the potential level, it said.

"The Board viewed that, with this reduction of policy interest rates and based on the available information, further monetary policy easing will be paused in the near term, given the space for market interest rates to adjust downwards in line with the current and past monetary policy easing measures," the statement said.

The island nation’s economy will contract by 2 per cent this year after shrinking by 7.8 per cent last year due to a severe foreign exchange shortage, CBSL has forecast. The World Bank, however, has predicted a 3.8 per cent contraction this year.

The central bank raised rates by a total of 10.5 percentage points till March this year to tackle inflation and rebuild currency reserves following last year’s financial crisis. However, it has reduced rates by a total of 550 basis points since June this year, including a 100-basis point cut in October.

Fibre2Fashion News Desk (DS)