September 21, 2019
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    - Central Bank cuts policy rates to revive economy

    August 23, 2019

    The Monetary Board of Sri Lanka's Central Bank has decided to relax monetary policies and reduce policy interest rates to revive the economic activity while the inflation remains low at mid-single digit levels, the Central Bank said in its monetary policy review on Friday.The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 22 August 2019, has decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points to 7.00 percent and 8.00 percent, respectively. Statutory Reserve Ratio (SRR) remains unchanged at 5.00 percent.

    "The Board arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy, with the aim of further supporting the revival of economic activity in the context of low inflation prevailing at present and the medium term inflation outlook, which is well anchored in the desired 4-6 percent range," the Bank said.The Board expects the economic growth to be hampered by adverse domestic and global developments although it is expected to recover gradually towards its potential in the medium term.

    "Therefore, it is essential that the available policy spaces are utilized to support productive economic activity without disrupting the improvements achieved in relation to macroeconomic stability," it said.The trade deficit continued to improve during the first half of 2019 with the sustained growth of exports and the notable contraction in the growth of imports.Tourist arrivals, which were impacted by the Easter Sunday attacks, continued to recover from the month of June while Workers' remittances recorded a marginal growth in June.The Sri Lankan rupee has appreciated against the US dollar by 2.4 percent so far during the year while gross official reserves are estimated at US dollars 8.3 billion at end July 2019, providing an import cover of 5.0 months.The Monetary Board said a speedy reduction in market lending rates is needed to revive economic activity and the monetary policy decision is expected to ensure a faster reduction in market lending rates.

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