Sri Lanka Keeps Key Rate Steady as Inflation Accelerates

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Sri Lanka kept its benchmark interest rate unchanged, even as inflation accelerated to the highest level in four months.

Governor Indrajit Coomaraswamy held the standing lending facility rate at 8%, the Central Bank of Sri Lanka said in a statement in Colombo on Friday. The decision was predicted by all six economists surveyed by Bloomberg.

Sri Lanka Keeps Key Rate Steady as Inflation Accelerates

Key Insights

  • The central bank maintained the standing deposit facility rate at 7%
  • Consumer prices rose to 5% in September, the highest level since May, but was still within the central bank’s desired range of 4%-6%. The central bank said Friday that it expects inflation to remain within that level
  • Policy makers have cut rates twice this year -- in May and August -- to bolster economic growth, hit by the Easter Sunday bomb attacks that killed more than 250 people
  • While economic expansion slowed to a more than five-year low of 1.6% in the quarter ended June, the central bank sees growth recovering gradually

What Economists Say

  • Any further reduction in rate would likely increase foreign outflows from the country, leading to further depreciation of the rupee, First Capital Research in Colombo said in a note before the announcement

Get More

  • On Sept. 24, the monetary authority ordered banks to lower market lending rates to help enhance the efficiency of the transmission of previous rate cuts
  • On Friday, the central bank said it expects faster reduction in bank lending rates
  • Today’s rate decision is likely the last before presidential elections scheduled for Nov. 16 and comes amid intensifying global risks and monetary easing
  • To read the full statement of the central bank, click here

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