Sri Lanka Central Bank Cuts Rates Unexpectedly

(RTTNews) - Sri Lanka central bank lowered its policy rates unexpectedly by 25 basis points on Wednesday as inflation is expected to remain below the target over coming months.

The Central Bank of Sri Lanka decided to reduce the Standing Deposit Facility Rate by 25 basis points to 8.25 percent and the Standing Lending Facility Rate to 9.25 percent.

The bank had reduced rates by a cumulative 625 basis points since 2023.

"The Board underscored the need to signal its desire to continue eased monetary conditions to sustain the revival of economic activity towards the full potential, in the absence of significant inflationary pressures," the bank said in a statement.

The central bank said financial institutions are expected to transmit the benefits of easing by adjusting lending rates.

The board expects inflation to remain below the target of 5 percent by a 'sizeable margin' for the next several months before aligning with the targeted level over the medium-term.

Due to the downward revisions to the electricity tariffs and fuel and gas prices and weaker demand, headline inflation fell to 1.7 percent in June. Last month, the International Monetary Fund released $336 million tranche to Sri Lanka to support its economic policies and reforms.

The executive board on completion of Article IV consultation said monetary policy should continue prioritizing price stability, supported by a sustained commitment to refrain from monetary financing and safeguard central bank independence.