The Monetary Board of Sri Lanka’s Central Bank has decided to relax monetary policies and reduce policy interest rates aiming to boost economic growth and stabilize inflation at mid-single digit levels, the Central Bank said in its monetary policy review on Friday.
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 30 May 2019, has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points to 7.50 percent and 8.50 percent, respectively. Statutory Reserve Ratio (SRR) remains unchanged at 5.00 percent.
“The Board arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy, with the broad aim of stabilizing inflation at mid-single digit levels in the medium term to enable the economy to reach its potential,” the Bank said.
Following the modest growth in 2018, the economy is expected to have grown at a higher pace during the first quarter of 2019, mainly due to improved performance in Agriculture and Industry-related activities.
However, the Easter Sunday attacks have affected confidence and sentiments of economic agents, particularly disrupting tourism and related activities.
Although normalcy is gradually returning to economic activity, a lower than initially projected growth could be anticipated during 2019, the Central Bank said.
At the last review of the monetary policy stance, the Central Bank provided forward guidance of a possible policy relaxation, if the current trends in the global financial markets, trade balance, and credit growth continue.
These trends have continued, and in addition, the economy has been affected by the Easter Sunday attacks and its adverse spillover effects on related sectors. Accordingly, the Monetary Board was of the view that a relaxation of the monetary policy stance is appropriate.