Mar 05, Colombo: Sri Lanka’s Central Bank releasing the monetary policy review on Thursday said given the current and expected developments in the domestic economy and the financial market, the Monetary Board was of the view that the continuation of the current monetary policy stance is appropriate.
Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 6.50 percent and 7.50 percent, respectively.
The Monetary Board arrived at this decision following a careful analysis of the current and expected developments in the domestic economy and the financial market as well as the global economy, the Central Bank said.
“The decision of the Monetary Board is consistent with the aim of maintaining inflation in the 4-6 percent range while supporting economic growth to reach its potential over the medium term.”
The Central Bank said the COVID-19 outbreak is likely to affect Sri Lanka’s economic performance as the widespread impact on China, the world’s second largest economy, will have spillover effects on the global economy through weakening trade, tourism and investment flows.
The Bank says exact impact on the Sri Lankan Economy would depend on the extent of the global spread of the COVID-19 outbreak, its persistence and policy responses of major economies and trading partners.
According to the Central Bank, Sri Lanka’s economic links with China could be directly affected as significant volumes of consumer goods, intermediate goods and investment goods are imported from China.
“The likely slowdown of the global economy and disruptions to the supply chain could affect Sri Lanka’s merchandise and service exports as well as related logistics. The slowdown in global tourist movements will affect Sri Lanka’s tourism sector, in addition to the direct impact of lower arrivals from China. The spread of the virus to countries with a significant number of Sri Lankan migrant workers could affect remittance inflows as well. These adverse implications are likely to outweigh any marginal benefit arising from reduced global energy prices and international interest rates,” the Bank explained.
Despite global disruptions to growth caused by the spread of COVID-19 and uncertainties in the domestic market due to upcoming elections and the delayed presentation of the annual government budget, the economy is expected to somewhat recover in 2020 from the current subpar performance, supported by monetary and fiscal stimulus measures complemented by improving investor confidence.