March 26, Colombo (LNW): The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has announced a reduction in the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points (bps) each, to 8.50 per cent and 9.50 per cent, respectively.
This decision, made during its meeting on March 25, 2024, follows a comprehensive assessment of both domestic and international economic conditions.
The primary objective is to maintain inflation at the targeted level of 5 per cent over the medium term while fostering economic growth.
In its deliberations, the Board considered several factors, including subdued aggregate demand, the limited impact of recent tax changes on inflation, favourable near-term inflation dynamics due to adjustments in electricity tariffs, stable inflation expectations, and manageable external sector pressures.
The Board also noted the importance of continuing the downward trend in market interest rates.
While acknowledging potential near-term inflation risks, the Board believes that these would not significantly alter the medium-term inflation outlook, given the anticipated prolonged period of below-par economic activity.
Furthermore, the Board emphasised the imperative of ensuring the effective transmission of monetary easing measures to market interest rates, particularly lending rates, by financial institutions.
It urged swift action to reduce lending rates, thereby facilitating the normalisation of market interest rates in the foreseeable future.
Additionally, the Board highlighted improvements in domestic money market activity and liquidity conditions.
Consequently, it has decided to lift the remaining restrictions on the usage of the Central Bank’s Standing Deposit Facility (SDF) starting April 1, 2024.
This move aims to enhance the market-based transmission of monetary policy adjustments.
In conclusion, the Monetary Policy Board urged all financial institutions to promptly implement measures to lower market lending interest rates.
This concerted effort is crucial to ensure that the benefits of the monetary policy easing measures are effectively passed on to businesses and households, thus supporting economic recovery and growth.
