Central Bank of Sri Lanka
July 24, 2024
A central bank surprise occurred in Sri Lanka where an unexpected 25-basis point interest rate reduction was announced after a scheduled policy review. At 8.25%, the new rate level is its lowest since April 2022 and down from 15.5% maintained from March 2023 until an initial cut in June 2023. Consumer price inflation in Sri Lanka had soared as high as 62.4% by September 2022 but decelerated just as rapidly thereafter, reaching as low as 0.9% in May. The surprise is the juxtaposition of a rate cut decision against June’s near-doubling of inflation to 1.7%. However, that’s still well below the medium-term target of 5.0%, and officials felt that not cutting the interest rate this month would send the wrong signal about their commitment to the target. They project higher inflation near term but then better alignment with 5%.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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