Sri Lanka's central bank has reduced its policy corridor by 50 basis points, with rates now set at 8.50 percent (floor) and 9.50 percent (ceiling), attributing the move to stable external conditions and low inflation. Factors such as subdued aggregate demand, minimal impact from recent taxes, a cut in electricity prices, well-contained inflation expectations, and limited external sector pressures facilitated the rate cut, according to the bank's March monetary policy statement. Analysts note that the central bank's deflationary policies, including allowing the exchange rate to appreciate, have mitigated the effects of tax hikes on traded goods and enabled the electricity price reduction. Additionally, the central bank has lifted a directive to cut interest rates on rupee-denominated credit, anticipating further declines in market interest rates.

Sri Lanka central bank cuts rates 50 basis points to 9.50-pct | EconomyNext