Sri Lanka central bank cuts key interest rates to support growth

[MUMBAI] The Central Bank of Sri Lanka (CBSL) cut both its key interest rates by 50 basis points on Thursday at its first monetary policy meeting of 2020, citing the need to support a domestic economic recovery.

CBSL slashed the standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) by 50 basis points (bps) each to 6.50 per cent and 7.50 per cent, respectively.

This is the third time in less than nine months that the CBSL has reduced rates, having first cut rates in May following the Easter bomb attacks that triggered a slump in investments and tourism in a blow to domestic growth.

The statutory reserve ratio was, however, kept unchanged at 5 per cent, the central bank said.

Headline inflation, as measured by the year-on-year change in the Colombo Consumer Price index (CCPI), accelerated in December owing to domestic supply disruptions.

"In spite of such short term fluctuations, the near term forecast suggests that inflation will hover below 5 per cent in 2020, and stabilise between 4 per cent -6 per cent thereafter, assisted by appropriate policy measures and underpinned by well anchored inflation expectations," the policy statement said.

"The Monetary Board will stand ready to respond to any build-up of demand driven price pressures in the foreseeable future".

CBSL said money market rates have continued to decline, but the pace of deceleration has reduced. The central bank felt it was essential market lending rates reduce further to support a probable pickup in credit growth and economic activity.

"The growth of money and credit aggregates is expected to accelerate with the envisaged continued decline in lending rates," the central bank said. 

REUTERS