Sri Lanka's central bank keeps policy interest rates at current levels

A meeting by its monetary board decided to maintain its standing deposit facility rate (SDFR) and the standing lending facility rate (SLFR) at their current levels of 11 per cent and 12 per cent respectively.

The board took note of the downward adjustment of market interest rates in response to monetary policy easing measures implemented thus far and the need to allow space for further adjustment of market interest rates swiftly, the bank said in a release.

Market interest rates of certain lending products remain excessive and are not in line with the current monetary policy stance, the board observed.

Domestic economic activity is expected to recover in the second half of this year and gradually reach the potential level of economic growth over the medium term.

The disinflation trend continues, with headline inflation reaching single digit levels. Headline inflation, measured by the year-on-year (YoY) change in the Colombo consumer price index (CCPI), decelerated to 6.3 per cent in July this year, reaching single digit levels for the first time since November 2021.

Headline inflation, based on the national consumer price index (NCPI), also decelerated to 4.6 per cent YoY in July.

The moderation in headline inflation was mainly driven by the softening of energy and food inflation, along with the favourable statistical base effect.

Meanwhile, CCPI- and NCPI-based core inflation, which reflects underlying demand pressures in the economy, moderated to 6.1 per cent and 6.3 per cent YoY respectively in July.

Headline inflation is expected to moderate further over the next few months and stabilise around mid-single digit levels over the medium term.

The trade deficit decreased notably during the seven months ending July 2023 with a significant decrease in merchandise imports, despite the decrease in merchandise exports.

The monetary board anticipates a faster reduction in overall market lending interest rates in line with the recent monetary policy easing measures.

The board decided to adopt targeted administrative measures to reduce specific lending interest rates that it considered to be excessive and direct the licensed banks to reduce overall rupee lending interest rates by an appropriate margin in the period ahead.

Fibre2Fashion News Desk (DS)