The Central Bank yesterday announced plans to reduce high interest rates on credit facilities provided to Micro, Small and Medium Enterprises (MSMEs) in close collaboration with financial institutions.

Presenting the Central Bank’s policy agenda for 2025 and beyond, Central Bank Governor Dr. Nandalal Weerasinghe acknowledged that despite a slight reduction in market lending rates, there is a high interest rate burden on MSMEs. He noted that while the risks associated with lending are decreasing and credit appetite is improving, some sectors still face disproportionately high interest rates.

“The central bank will work closely with banks and other financial institutions to reduce the high interest rates still prevailing in the market,” said Dr. Weerasinghe.

In 2025, the central bank said it expects a continued economic recovery supported by accommodative monetary policy and improving business sentiment. Shrinking public sector debt has freed up resources for private sector investment, which is expected to boost economic growth.

Dr. Weerasinghe said that inflation has been successfully reduced to lower levels, resulting in positive real returns on deposits. The central bank will continue to adjust interest rates to maintain low and stable inflation, supporting sustainable economic growth.

Due to one-time supply-side price adjustments, the central bank expects a period of deflation in early 2025. However, inflation is forecast to return to the 5 percent target level later in the year.

Dr. Weerasinghe said that this period of temporary deflation will provide some relief to the public by reducing the cost of living.

Furthermore, the central bank opined that under a low interest rate environment, the financial industry will be forced to come up with innovative savings products.

Amid these developments, in the context of a rapidly aging population, the financial industry is encouraged to introduce innovative solutions and products to ensure the promotion of domestic savings in a low interest rate environment and to promote savings to compensate for interest rate volatility during business cycles. Features include liquidity and safety.

“The culture of saving should be nurtured early in life, which will not only promote long-term savings but also ensure greater financial security for a better life after retirement,” Dr. Weerasinghe explained.