Sri Lanka Central Bank Cuts Key Rates By 50 Bps

Sri Lanka's central bank reduced its key interest rates unexpectedly by 50 basis points to revive economic growth amid low inflation.

The monetary board of the Central Bank of Sri Lanka on Friday decided to cut the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points to 7.00 percent and 8.00 percent, respectively. The bank had earlier reduced its rates by 50 basis points in May.

At the August meeting, policymakers concluded that a reduction of interest rates is warranted.

The statutory reserve ratio was kept unchanged at 5.00 percent.

The chances are that today's policy loosening will probably be the last in 2019 as the currency is likely to come under renewed pressure, Alex Holmes, an economist at Capital Economics, said.

While the central bank expects the "depreciation pressure" to be "short-lived", the economist said he expects it to continue over the coming quarters.

Economic growth is forecast to recover gradually towards its potential in the medium term, but domestic and global headwinds are likely to delay this recovery, the central bank said.

The bank expects inflation to remain around the lower bound of the desired inflation target range of 4-6 percent during the remainder of 2019.