Sri Lanka increases policy rates to rein in inflationary pressures

“While recognising the possible ramifications on domestic economic activity, among others, the Board was of the view that a further tightening of the stance of monetary policy was necessary to ensure macroeconomic stability, by further curtailing any underlying demand pressures in the economy. Such monetary policy tightening is expected to ensure that inflation expectations remain anchored around the targeted level of headline inflation over the medium term,” the Central Bank said in a statement.

In arriving at the decision to increase SDFR and SLFR by 100 basis points, the Board weighed the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term, the statement said.

The Board, however, reiterated that the remedial policy measures adopted by the Central Bank need to be complemented by timely and appropriate policy adjustments by the Government, including the need for the expeditious implementation of fiscal consolidation measures, alongside efficient and effective social welfare programmes to support the vulnerable groups of the society.

The latest policy adjustment “would help guide inflation expectations to be anchored around the targeted level of headline inflation over the medium term, while curtailing any build-up of underlying demand pressures in the economy,” the statement added.

Post the new policy rate, the Statutory Reserve Ratio (SRR) is now at 4.00 per cent.

Fibre2Fashion News Desk (RKS)