AMN/ WEB DESK
To stimulate growth amid its worst financial crisis in decades, Sri Lanka’s central bank slashed interest rates by 50 basis points today. The Central Bank of Sri Lanka (CBSL) reduced the Standing Deposit Facility Rate to 8.50 per cent and the Standing Lending Facility Rate to 9.50 per cent, catching markets off guard.
CBSL Governor Dr. Nandalal Weerasinghe emphasized that if inflation remains stable between 4 per cent- 5 per cent, there is room for further monetary easing. The decision, which brings total interest rate cuts to 700 basis points since last year, reflects efforts to bolster demand conditions and capitalize on recent developments like electricity tariff reductions and currency appreciation.
Despite a temporary uptick in inflation due to a VAT hike earlier this year, the central bank remains confident in its medium-term inflation outlook. By lowering rates, CBSL aims to maintain inflation at the targeted level of 5 per cent while propelling the economy towards its potential.
Sri Lanka faced the peak of its worst ever economic crisis in 2022 when it defaulted on the external debt commitments. The crisis which was centred on an acute forex shortage resulted in short supply of essential imports such as food, fuel, medicines and fertiliser among others taking the inflation to a high of 70 per cent. With Indian assistance, unlocking of financing package from IMF, and tight monetary policy measures the inflation was brought down to single digit late last year. The inflation for the month of February 2024 was recorded at 5.9 per cent in the island nation.