Mar 04, Colombo: Sri Lanka’s Central Bank releasing the monetary policy review on Thursday said the Monetary Board has decided to continue the current accommodative monetary policy stance.
Accordingly, The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 03 March 2021, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 percent and 5.50 percent, respectively.
The Board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts, the Bank said in its review.
The Board noted the recent slowdown in credit disbursements to the private sector and inadequate lending to productive sectors of the economy, and stressed the need for the financial system to actively lend to productive sectors in order to support the ongoing recovery of domestic production-based economic activity.
Further, the Board has observed the recent uptick in certain market interest rates, and reemphasized its commitment to continue the low interest rate structure until the economy shows signs of sustained revival, in the context of the low inflation environment.
The Bank expects the Sri Lankan economy to make a notable recovery in 2021, supported by policy stimulus and improving business sentiments.
“Given the low inflation environment, the Central Bank is in the process of actively supporting the Government’s economic agenda focused on developing a production-based economy. Positive sentiments fueled by the COVID-19 vaccination drive in the country and the impact of growth promoting policies are expected to support the economic revival over the short to medium term,” the Central Bank said.
According to the review, monetary policy easing measures implemented since early 2020 have resulted in historically low interest rates.
While many market interest rates have declined to their historic lows, certain market interest rates, such as yields on government securities, have shown unwarranted volatility recently, which is not in line with monetary policy expectations, the Bank noted.
The Central Bank reiterated that the high level of excess liquidity in the money market and the reduction in policy interest rates thus far are intended to result in a stable low interest rate environment, while providing a positive real return to savers.
The Central Bank expects the Inflation to remain subdued during the remainder of the year supported by the envisaged improvements in domestic supply conditions, which would also contribute towards maintaining inflation in the targeted range of 4-6 per cent over the medium term.
The Central Bank said it will continue to monitor domestic and global macroeconomic and financial market developments and take further proactive measures to help the economy to reach a sustainable high growth trajectory, while maintaining inflation in the targeted 4-6 per cent range under the flexible inflation targeting framework.