Sri Lanka Central Bank reduces policy interest rates

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



Issuing a statement the CBSL said the Repurchase rate and the Reverse Repurchase rate will be reduced by 25 basis points each with immediate effect. Accordingly, the new Repurchase rate and the Reverse Repurchase rate would be 7.25 percent and 9.50 percent, respectively.

The decision to reduce the interest rates is seen by the business community as a measure to counteract the effect of the loss of European Union's GSP+ trade facility.
The Bank says the reduction in policy rates is taken due to the low inflation in the country.
The CBSL said the monetary policy stance was gradually eased during 2009 due to the declining inflation and the slowdown in economic activity and the Bank has observed several favourable developments in response to the monetary policy measures taken.

The inflation declined for the fourth consecutive month to 4.8 percent and the annual average inflation reached 3.9 percent in June this year. The Bank expects low inflation rate for the remainder of the year.

The CBSL says the external trade has shown strong signs of recovery during the first four months of the year with exports increasing by 10.7 percent.

The receipt of the two tranches of the USD 2.6 billion IMF loan has contributed to increase the country's gross official reserves including forex swaps to approximately USD 5.7 billion, at the end of June. The amount is equivalent to 6 months of imports.

The GDP growth in the first quarter of 2010 has been estimated at 7.1 per cent and the Central Bank expects the economy to grow by around 7 percent during the year.