Sri Lanka Central Bank eases monetary policy further to support economic activity

Mar 16, 2020 (LBO) – The Monetary Board of Sri Lanka’s Central Bank at an urgent meeting held today has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 25 basis points to 6.25 percent and 7.25 percent, respectively, with effect from tomorrow.

The board has also decided to reduce the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks (LCBs) by 1.00 percentage point to 4.00 percent, with effect from the current reserve maintenance period.

“The Board arrived at this decision in consideration of the urgent need to support economic activity with the rapid global spread of the COVID-19 pandemic and its possible further spread in Sri Lanka,” the Central Bank said.

Sri Lanka’s economic growth, which has remained subdued for an extended period of time until the end of 2019, has begun to turnaround as a result of fiscal and monetary stimulus and the return of business confidence after the presidential election.

“However, it has increasingly become evident that domestic economic activity during the year 2020 would continue to be affected through various channels by the spread of the pandemic,”

The Central Bank said they are working closely with the government to ensure coordinated fiscal and monetary policy responses to mitigate the economic impact of the COVID-19 pandemic.

“In particular, the Central Bank will work with the government to raise the required funding for the government smoothly to tackle the current exceptional situation.”

The Central Bank also requests financial institutions to refrain from engaging in speculative activity which could lead to panic in the financial market.

Meanwhile, in an emergency move Sunday, the US Federal Reserve announced it is dropping its benchmark interest rate to zero and launching a new round of quantitative easing.

The QE program will entail 700 billion US dollars worth of asset purchases entailing Treasurys and mortgage-backed securities.