• Fri. Oct 15th, 2021

Central Bank of Sri Lanka holds policy rates at their current levels despite inflationary concerns

The Central Bank of Sri Lanka (CBSL) decided to hold key policy rates at their current levels despite concerns over rising inflation rates and possible inflationary pressures over the medium term.

In consideration of the current and expected macroeconomic developments highlighted above, the Monetary Board has decided to maintain the policy interest rates, i.e., Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the CCBSL, at their current levels of 4.50 percent and 5.50 percent, respectively.

Headline Inflation In June rose to a recent high of 5.2 percent in CCPI and it rose to 6.1 percent high in NCPI in May. Food Inflation has been rising above 10 percent in recent months.

“The envisaged improvements in aggregate demand conditions stemming from the effects of the stimulus measures adopted by the Central Bank and the Government and the likely increases in global commodity prices may generate some inflationary pressures over the medium term. Such pressures will be mitigated through timely policy intervention by the Central Bank, thereby ensuring the maintenance of inflation in mid-single digit levels over the medium term,” the CBSL stated.

The real interest rates offered on deposits by banks turned negative due to rising inflation and prevailing a low-interest rate regime.

Average Weighted New Deposit Rate (AWNDR) and Average Weighted New Fixed Deposit Rate (AWNFDR) stood at 4.77 percent and 4.90 percent at-end May, below the inflation.

Treasury bill yields rose gradually to 5.19-5.23 percent range on Wednesday from 4.69-4.98 percent range prevailed at-end February.

The CBSL expects to achieve 5 percent economic growth for the year, down from an earlier projection of 6 percent due to the recent lockdown.

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