Policy rates of Sri Lanka’s Central Bank to remain unchanged

Nov 29, 2019 (LBO) – The Monetary Board of the Central Bank of Sri Lanka has decided to maintain its accommodative monetary policy stance.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will remain at their current levels of 7.
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00 percent and 8.00 percent, respectively.

The Board said it arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy.

"The decision of the Monetary Board is consistent with the aim of maintaining inflation in the desired 4-6 percent range while supporting economic growth to reach its potential over the medium term," the Central Bank said.

The Monetary Board was of the view that the policy measures adopted by the Central Bank in recent months are being transmitted to the economy through the financial market with market lending rates declining.

"While noting the fiscal slippages thus far during the year, the Monetary Board observed that the recent tax revisions would support lower inflation and higher economic growth in the short term, but was of the view that greater clarity with regard to the medium-term fiscal path of the government is required to assess the impact on the economy over the medium term."

Monetary policy in several key economies has become increasingly accommodative in view of the bleak global economic outlook.

The Central Bank said a gradual revival in domestic economic activity is expected over the medium term while the external sector remains resilient.

The rupee has appreciated against the US dollar by 1.0 percent thus far during the year. Gross official reserves are estimated at 7.8 billion US dollars at the end of October 2019, providing an import cover of 4.7 months.

Market lending rates are adjusting downwards, responding to the relaxation of monetary policy and the imposition of caps on lending interest rates of licensed banks.

"The Average Weighted Prime Lending Rate (AWPR) is expected to reduce by a further 70 basis points to 9.50 percent by end 2019," the Central Bank said.

"The Average Weighted Lending Rate (AWLR) is projected to decline by around 120 basis points to below 12.50 percent by March 2020."

Despite near term volatilities, inflation is expected to remain in the desired range of 4-6 percent in the near term as well as the medium term, the Central Bank said.

The release of the next regular statement on monetary policy will be on 27 December 2019.

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