Central Bank reduced Statutory Reserve Ratio & increased policy interest rates

Nov 14, 2018 (LBO) – Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 13 November 2018, has decided to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of commercial banks by 1.50 percentage points to 6.00 percent.

In order to neutralize the impact of this reduction and maintain its neutral monetary policy stance, the Monetary Board has decided to increase the Standing Deposit Facility Rate (SDFR) by 75 basis points to 8.00 percent and the Standing Lending Facility Rate (SLFR) by 50 basis points to 9.00 percent.

The Board said it arrived at this decision following a careful analysis of current and expected developments in the domestic and global economy and the domestic financial market, with the broad aim of stabilizing inflation at mid-single-digit levels in the medium term to enable the economy to reach its potential.

“The Monetary Board observed that large and persistent liquidity deficit in the domestic money market requires policy intervention,” the Central Bank said.

“The board decided to reduce the SRR applicable on all rupee deposit liabilities of commercial banks by 1.50 percentage points to 6.00 percent from the current level of 7.50 percent with effect from the next reserve maintenance period commencing 16 November 2018,”

“The reduction in SRR is expected to release a substantial amount of rupee liquidity to the banking system, thus reducing the cost of funds of banks.”

Monetary Policy Press Release No 7_2018