No change in policy interest rates
The Monetary Board of the Central Bank, at its meeting held on August 23, 2023, 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 11 per cent and 12 per cent, respectively.
The Board arrived at this decision following a careful analysis of current and expected developments in the domestic as well as the global economy, while noting the significant easing of monetary conditions effected since June 2023.
The Monetary Board took note of the downward adjustment of market interest rates in response to monetary policy easing measures implemented thus far and the need to allow space for further adjustment of market interest rates swiftly. However, the Board observed that market interest rates of certain lending products remain excessive and are not in line with the current monetary policy stance. Moreover, the Board anticipates a faster reduction in overall market lending interest rates in line with the recent monetary policy easing measures.
Accordingly, the Board decided to adopt targeted administrative measures to reduce specific lending interest rates that it considered to be excessive and direct the licensed banks to reduce overall rupee lending interest rates by an appropriate margin in the period ahead.
The disinflation trend continues, with headline inflation reaching single digit levels Headline inflation, measured by the year-on-year change in the Colombo Consumer Price Index (CCPI, 2021=100), decelerated to 6.3 per cent in July 2023, reaching single digit levels for the first time since November 2021.
Following a similar trend, headline inflation, based on the National Consumer Price Index (NCPI, 2021=100), also decelerated to 4.6 per cent in July 2023 (year-on-year). Headline inflation is expected to moderate further over the next few months and stabilise around mid-single digit levels over the medium term.
Meanwhile, downside risks to inflation projections include, among others, the possibility of faster recovery of the economy driven by further normalisation of supply conditions and import relaxations, and the sustained impact of diminishing purchasing power of the public.