Sri Lanka's Central Bank Keeps Rate On Hold

The Monetary Board of the Central Bank of Sri Lanka decided to hold the Standing Deposit Facility Rate at 4.50 percent and the Standing Lending Facility Rate at 5.50 percent.

The bank has reduced the interest rates five times so far this year. The bank had slashed the rates by 100 basis points in July.

The board decided to adopt targeted measures to reduce specific interest rates that it considered to be excessive, which would help marginal borrowers.

The central bank expects the economy to recover in the second half of the year.
However, for sustaining the growth momentum beyond the near term would require reforms to address structural issues in the economy, the bank noted.

Inflation is forecast to remain broadly within the desired 4-6 percent range in the near to medium term, with appropriate policy measures.

Given the poor outlook for the economy and mounting political pressure, Alex Holmes, an economist at Capital Economics, said the easing cycle has further to run.

The economist expects 50 basis points of rate cuts for the remainder of this year and another 50 basis points of cuts in 2021.