Sri Lanka central bank cuts statutory reserve ratio by 200 bps

THE Central Bank of Sri Lanka has cut the statutory reserve ratio for commercial banks by 200 basis points to 2 per cent, effective Aug 16, it said on Wednesday (Aug 9).

The decision was taken to inject liquidity into the banking system and further reduce the market liquidity deficit on a permanent basis, the bank said in a statement.

The move is expected to inject about US$625 million into the domestic money market and further reduce interest rates, the statement added.

Encouraged by a steep drop in inflation, which hit 6.3 per cent last month, the central bank cut policy rates by 450 basis points in June and July.

The monetary authority had earlier warned it would take administrative steps to push down interest rates if commercial banks were slow to pass on the rate cut to the market.

The central bank raised rates by a record 950 bps last year to tame surging inflation and by 100 bps on March 3 as the country battled its worst financial crisis in decades. REUTERS