Sri Lanka's central bank further reduces policy rates by 50 bps

The bank’s monetary policy board reduced its standing deposit facility rate (SDFR) and the standing lending facility rate (SLFR) to 8.5 per cent and 9.5 per cent respectively.

In arriving at this decision, the board considered subdued aggregate demand conditions, the lesser-than-expected impact of the recent changes to the tax structure on inflation, favourable near-term inflation dynamics due to the recent adjustment to electricity tariffs, inflation expectations, the absence of excessive external sector pressures and the need to continue the downward trajectory in market interest rates, the central bank said in a release.

The possible upside risks to inflation in the near term would not materially change the medium-term inflation outlook as economic activity is projected to remain below par for an extended period, the board observed.

Headline inflation decelerated to 5.9 per cent in February this year from 6.4 per cent in January, mainly driven by the drop in non-food inflation.

Core inflation, which reflects underlying demand pressures in the economy, remained subdued at 2.8 per cent in February.

Headline inflation is anticipated to moderate in the forthcoming months and the recovery in domestic economic activity is expected to continue, the bank observed.

The merchandise trade deficit is estimated to have widened year on year in January this year, driven by a higher increase in imports.

Fibre2Fashion News Desk (DS)