Sri Lanka's Central Bank has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 250 basis points to 13.00 percent and 14.00 percent, respectively.
The Monetary Board of the Central Bank has 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 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," the board said.
"The downward adjustment in market interest rates will accelerate in line with the envisaged single-digit inflation, thereby supporting credit to the private sector and softening the pressures in the financial sector."
Faster deceleration of inflation and lower probability of excessive demand pressures during the economic rebound phase creates space for a gradual policy relaxation in the period ahead.
The Board underscored the need for a quicker passthrough of the benefit of the relaxed monetary policy stance to the stakeholders of the economy.
The financial institutions, led by LCBs, are expected to adjust the market interest rates swiftly in line with the changes in the policy interest rates.