The Central Bank of Sri Lanka further reduces policy interest rates

COLOMBO (News 1st): Sri Lanka's Central Bank cut interest rates again on March 25th, 2024.

They lowered the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) by 0.5% each, to 8.5% and 9.5% respectively.

The Bank decided this after reviewing Sri Lanka's economic situation.

Inflation is expected to stay around the target of 5% in the medium term, and there is less demand for goods and services than usual. The Bank believes this justifies lower interest rates.

Lower interest rates are meant to encourage people and businesses to borrow money. The Bank hopes this will lead to more spending and investment, which would help the economy recover from the recent recession.

The Bank acknowledged that some recent price increases were due to temporary issues and government decisions, not because of high demand. They believe lower interest rates won't make these temporary price increases worse.

The Bank also ended a rule that limited how much interest banks could charge borrowers. This rule was put in place last year, but the Bank believes it's no longer necessary. They want interest rates to be set by the market, not by government rules.

Another rule change allows banks to use a Central Bank program called the Standing Deposit Facility more freely. This should make it easier for banks to manage their cash flow.

The Bank emphasized that banks need to pass on the benefit of lower interest rates to their customers. This means charging businesses and households lower interest rates on loans.