Sri Lanka Central Bank reduces policy interest rates to boost economic growth

The Central Bank of Sri Lanka (CBSL) has decided to reduce the policy interest rates with immediate effect. The decision was taken at the monetary policy review meeting held Monday.

Issuing its monetary policy review today the CBSL said it has decided to reduce the Repurchase rate by 25 basis points and the Reverse Repurchase rate by 50 basis points with effect from 11 January 2011.

Accordingly, the new Repurchase rate and the Reverse Repurchase rate will be 7.00 percent and 8.50 percent, respectively.

The Bank says the decision to reduce the interest rates was taken due to the favourable macroeconomic environment in the country with the inflation hovering in single digits and expected increase in agricultural production easing the domestic price pressures.

Sri Lanka's inflation was recorded at 5.9 percent for last year and according to the Central Bank the continued stability of the rupee containing the price increases of imported commodities has also contributed to the low inflation.

Reasoning that the present economic conditions allow new and wider investments to be made in all sectors of the economy without raising the inflation, the Central Bank says the encouragement of substantial and sustained private sector participation in economic activity in the years ahead would be vital for growth.

The Central Bank has felt that a reasonable relaxation of its monetary policy stance would be appropriate and timely.

"Such policy stance would result in a further reduction in market interest rates, which would reflect the lower risk premia that is expected to prevail in the period ahead, without increasing the inflationary pressures in the economy," the policy review said.