2020.07.0907:10:00UTC+00Sri Lanka's Central Bank Cuts Rates By 100 Bps

Sri Lanka's central bank reduced its key interest rates by 100 basis points on Thursday to enhance lending to productive sectors and bring the economy back to growth trajectory amid the coronavirus pandemic.

The Monetary Board of the Central Bank of Sri Lanka decided to reduce the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 100 basis points each, to 4.50 percent and 5.50 percent, respectively.

This was the fifth reduction in rates so far this year.

The board observed that despite high levels of surplus liquidity available to banks, credit extended to the private sector contracted significantly in May.

However, credit extended to the private sector is expected to pick up in the period ahead, supported by the expected sharp reduction in lending rates and highly concessional credit schemes introduced to support covid-19 hit businesses, the bank said.

The central bank urged lenders to pass on the full benefit of the cumulative reduction of 250 basis points in policy interest rates thus far during the year without delay.

A rebound in economic activity is expected in the second half of the year with the support of monetary and fiscal stimulus measures. Nonetheless, the introduction of growth promoting and confidence enhancing structural reforms is imperative to foster high and sustainable economic growth over the medium term, the board noted.