Sri Lanka Central Bank Holds Interest Rates Steady Amidst High Inflation Concerns

Sri Lanka's central bank decided to maintain interest rates unchanged on Tuesday in order to keep inflation under control. As the country continues to grapple with the severe financial crisis, the rate hold comes as a measure to stabilize the economy.

The Central Bank of Sri Lanka (CBSL) announced that it has kept the Standing Deposit Facility Rate steady at 8.50 per cent and the Standing Lending Facility Rate at 9.50 per cent.

In March, the CBSL implemented a 50 basis points reduction in rates as part of its ongoing easing cycle, which has resulted in a total decrease of 700 basis points since June. As per a report by Reuters, this partially offsets the 1,050 basis points increase that occurred since April 2022.

In April month, Sri Lanka's annual inflation rate stood at 1.5 per cent, a decline from 6.4 per cent recorded earlier in the year, according to a statement from the central bank.

"Incoming data suggests that headline inflation is likely to be below the targeted level of 5 per cent in the upcoming months due to the combined impact of the administered price adjustments and eased food prices, although some upside risks remain," the central bank said.

Sri Lanka's economy is projected to grow by 3 per cent in 2024, following Colombo's agreement on a $2.9 billion lending program from the International Monetary Fund (IMF) last March.

The country's economy contracted by 7.3 per cent in 2022 and by 2.3 per cent the following year due to a severe financial crisis triggered by a record shortage of dollar reserves and debt levels.