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Sri Lanka keeps policy rates unchanged
  • The Central Bank of Sri Lanka kept the Standing Deposit Facility Rate (SDFR) at 8.50% and the Standing Lending Facility Rate (SLFR) at 9.50% to maintain medium-term inflation at the targeted 5% while supporting economic growth.

  • Headline inflation rose to 1.5% in April 2024 due to non-food inflation but is expected to stabilize around the target. Market lending interest rates need further reduction to stimulate private sector credit and economic recovery. The external sector strengthened with higher tourism inflows, remittances, and reserves, and the Sri Lankan rupee appreciated by 8% against the US dollar.

 

The Monetary Policy Board of the Central Bank of Sri Lanka decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) at 8.50% and 9.50%, respectively, following their meeting on May 27, 2024. This decision was based on a careful assessment of current and expected macroeconomic conditions, with the aim of maintaining medium-term inflation at the target level of 5% while supporting economic growth. Although headline inflation rose slightly to 1.5% in April 2024 due to non-food inflation, month-on-month food and non-food prices declined, indicating a stabilization influenced by recent policy measures like VAT amendments and price reductions in electricity, fuel, and LP gas. Core inflation remains low, reflecting subdued demand pressures, and inflation is expected to align with the target over the medium term.

The Board highlighted the need for a further reduction in market lending interest rates to enhance domestic monetary conditions and support economic recovery. Despite a general downward adjustment in market interest rates and improved liquidity, lending rates on some loan products remain high, which has limited the expansion of private sector credit. The external sector showed improvement with increased tourism-related inflows, elevated workers’ remittances, and a notable rise in gross official reserves to $5.5 billion. The Sri Lankan rupee appreciated by about 8% against the US dollar in 2024. The Central Bank emphasized the importance of passing the benefits of eased monetary conditions to borrowers and will continue to monitor economic indicators to ensure domestic price stability and economic growth.


Sri Lanka keeps policy rates unchanged | Economy Next

Economy Next
2024-05-28