"Central Bank of Sri Lanka Unveils Aggressive Monetary Policy Easing"

In a bold move, the Monetary Policy Board of the Central Bank of Sri Lanka, convening on November 23, 2023, announced a significant relaxation of its monetary policy stance. The decision entails a noteworthy 100 basis points reduction in both the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank, adjusting them to 9.00 percent and 10.00 percent, respectively.

This strategic decision stems from a comprehensive analysis of prevailing and anticipated developments in both the domestic and global economies. The primary objective is to achieve and sustain inflation at the targeted level of 5 percent over the medium term while fostering an environment conducive to the economy reaching and stabilizing at its potential level.

Acknowledging potential upside risks to inflation in the near term, attributed to supply-side factors originating from expected developments both domestically and globally, the Board remains confident that such risks will not fundamentally alter the medium-term inflation outlook. Anchored public inflation expectations and a projected below-par economic activity in the near to medium term contribute to this assurance.

With the culmination of this latest reduction in policy interest rates, coupled with prior monetary policy measures initiated since June 2023, the Board believes that ample monetary easing has been implemented to stabilize inflation over the medium term. Emphasizing the importance of a swift and complete passthrough of these easing measures to market interest rates, especially lending rates, the Board aims to expedite the normalization of market interest rates in the forthcoming period."

"As the Central Bank of Sri Lanka makes a bold move to further ease its monetary policy stance, the recent decision to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 100 basis points signals a proactive approach to economic management. The Board's meticulous analysis of both domestic and global economic conditions underscores its commitment to achieving and maintaining the targeted inflation rate of 5 percent over the medium term.

While recognizing potential inflationary risks in the short term, the Board maintains confidence in the resilience of the medium-term inflation outlook. Anchored public inflation expectations and a cautious economic activity projection contribute to this outlook.

With this reduction in policy interest rates, complementing earlier measures undertaken since June 2023, the Board believes it has implemented sufficient monetary easing to stabilize inflation over the medium term. The emphasis on a swift and comprehensive transmission of these measures to market interest rates, particularly lending rates, reflects a strategic intent to expedite the normalization of market interest rates in the upcoming period. The Central Bank's decisive actions aim to navigate economic challenges effectively and foster an environment conducive to sustained stability and growth."