Central Bank cuts interest rates for the 7th time to spur economic activity

Central Bank cuts interest rates for the 7th time to spur economic activity

9 July 2020 10:34 am

The Central Bank further relaxes its Monetary Policy Stance by reducing  the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the by 100 basis points each, to 4.50 per cent and 5.50 per cent, respectively.

The Monetary Board arrived at this decision with a view to inducing a further reduction in market lending rates, thereby encouraging the financial system to aggressively enhance lending to productive sectors of the economy.

It would reinforce support to COVID-19 hit businesses as well as to the broader economy, given conditions of subdued inflation.

The spread of the COVID-19 pandemic has significantly impacted near term growth prospects globally, while available indicators for Sri Lanka also suggest that economic growth is likely to have been severely affected during the second quarter of 2020.

Although a rebound is expected during the second half of the year with the support of monetary and fiscal stimulus measures, the introduction of growth promoting and confidence enhancing structural reforms is imperative to foster high and sustainable economic growth over the medium term.

On the external front, the trade deficit is estimated to have narrowed during the first five months of 2020, with the contraction in imports outweighing the contraction in exports.

Reflecting the impact of measures taken to stem foreign currency outflows, the Sri Lankan rupee, which remained volatile briefly from mid-March to mid-April 2020, recorded a notable appreciation thereafter.

Gross official reserves stood at US dollars 6.7 billion by end June 2020, sufficient to cover 4.2 months of imports.