Central Bank of Sri Lanka Raises Deposit and Lending Rates by 25 Basis Points

March 24, 2017

This third round of tightening was smaller in size (25 basis points) than the incremental increases of 50 basis points each in February and July of 2016. The Standing Deposit and Standing Lending Rates now become 7.25% and 8.75%, the cumulative 125 basis point hike since last July reverses more than half of the previous 200 basis points of reduction engineered from October 2012 to April 2015. Today’s action is a response to higher actual and expected inflation, which is at 7.1% in core underlying terms. A released statement asserts

Further tightening of monetary policy is necessary as a precautionary measure, in order to contain the build-up of adverse inflation expectations and the possible acceleration of demand side inflationary pressures through excessive monetary and credit expansion. The Monetary Board also took into account the notable improvements in fiscal operations, which have resulted in the overall budget deficit in 2016 declining to envisaged levels. The Board was of the view that these improvements, together with the substantial upward movements already observed in market interest rates, have reduced the required adjustment in policy interest rates.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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