Sri Lanka cuts policy rates to reduce inflation and boost economic recovery

Sri Lanka’s Central Bank slashed the policy interest rates by 250 basis points to reduce inflation.

On June 1, Sri Lanka’s Central Bank slashed the policy interest rates by 250 basis points, the first since the “historic contraction” of the island nation’s economy in 2022, saying it will reduce high inflation and provide an impetus for growth.

The Monetary Board of the Central Bank of Sri Lanka decided to cut the policy rate by 250 basis points, saying inflation was falling faster than expected.

The board of the bank held a meeting on May 31. They reduced the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 250 basis points to 13.00% and 14.00%, respectively.

“The board arrived at this decision with a view to easing monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures and further anchoring of inflation expectations,” the Central Bank said.

“The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity witnessed in 2022 while easing pressures in the financial markets,” it said in a statement.

“Inflation is projected to decelerate notably in the period ahead, reaching single-digit levels earlier than expected,” the statement added.