In a bid to stimulate economic growth and maintain inflation at the targeted level, the Monetary Policy Board of the Central Bank of Sri Lanka announced a significant reduction in both the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR). The decision, made at the board's meeting on November 23, 2023, sees a 100 basis points cut, bringing the SDFR to 9.00 per cent and the SLFR to 10.00 per cent.

The move follows a thorough analysis of current and anticipated developments in both the domestic and global economy. The board's objective is to achieve and sustain inflation at the targeted level of 5 per cent over the medium term while facilitating the economy to reach and stabilize at its potential level.

The Monetary Policy Board acknowledged potential upside risks to inflation projections in the near term, driven by supply-side factors arising from expected developments at both domestic and global levels. Despite these concerns, the board expressed confidence that such short-term risks would not significantly alter the medium-term inflation outlook. This confidence is based on the anchoring of inflation expectations among the public and the projection that economic activity will remain suboptimal in the near to medium term.

The board highlighted that the series of monetary policy measures implemented since June 2023, combined with this latest reduction in policy interest rates, have collectively contributed to substantial monetary easing. The objective is to stabilize inflation over the medium term.

Emphasizing the importance of a swift and complete passthrough of monetary easing measures to market interest rates, especially lending rates, the Monetary Policy Board urged financial institutions to facilitate the normalization of market interest rates in the upcoming period. The reduction in policy rates is anticipated to encourage borrowing and spending, thereby stimulating economic activity.