2023.07.0607:01:00UTC+00Sri Lanka Central Bank Slashes Key Rates

Sri Lanka's central bank reduced its benchmark rates sharply on Thursday to reinforce economic rebound amid faster deceleration of inflation.

The Monetary Board of the Central Bank of Sri Lanka lowered the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 200 basis points to 11.00 percent and 12.00 percent, respectively.

The bank had last reduced the interest rates by 250 basis points in June.

The board urged banking and financial institutions to pass on the benefits of successive reduction in policy rates without delay.

The central bank expects the economy to recover gradually towards the end of the year, underpinned by policy normalization led by the monetary easing, improvements in supply conditions and the gradual relaxation of import restrictions among other things.

This recovery is forecast to sustain and gradually close the large negative output gap that exists in the economy and reach the potential level of growth over the medium-term, the bank said.

Last year, Sri Lanka secured about $3 billion bailout from the International Monetary Fund to restore marcoeconomic balance. The IMF forecast Sri Lanka's GDP to shrink 3 percent this year before registering a moderate growth of 1.5 percent next year.