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Policy interest rates reduced in view of the faster deceleration of inflation, reinforcing the rebound of the economy

In consideration of the current and expected macroeconomic developments, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 05 July 2023, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 200 bps to 11.00 per cent and 12.00 per cent, respectively.

The successive reduction in the policy interest rates will provide the impetus for market interest rates to adjust downwards in line with the faster moderation of inflation, so that monetary conditions remain accommodative.

The Board expects the banking and financial sector to pass on the benefits of the reduction of policy interest rates thus far and the reduction of interest rate risk premia to businesses and individuals without delay. However, if the passthrough of such developments is deemed to be inadequate and sluggish, the Central Bank will consider taking appropriate administrative measures to ensure the timely and adequate passthrough of accommodative monetary policy.

The Board expects that, with this reduction of policy interest rates, along with the significant reduction of risk premia on government securities witnessed recently, the market interest rates, particularly lending rates, will adjust downwards adequately and swiftly.
Therefore, the banking and financial sector is urged to pass on the benefits of this significant easing of monetary policy by the Central Bank to individuals and businesses, thereby supporting economic activity to rebound in the period ahead.

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