CBSL maintains policy interest rates at current levels

By Hiran H. Senewiratne

The Central Bank decided to maintain its Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) at their current levels of 5.00 per cent and 6.00 per cent, respectively.

“The Monetary Board has decided to maintain rates after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts, Central Bank Governor Ajith Nivard Cabraal told media on releasing the monthly monetary policy review yesterday at the Central Bank.

Cabraal said the Monetary Board had decided to continue the current monetary policy stance at its meeting held on November 24.

Cabraal added: “The Board noted the recent acceleration of inflation, driven mainly by supply disruptions and the surge in global commodity prices and reiterated its commitment to maintaining inflation at the targeted levels over the medium term with appropriate measures, while supporting the economy to reach its potential in the period ahead.

“Sri Lankan economy witnessed a strong recovery during the first half of 2021, supported by fiscal and monetary stimulus measures. The re-emergence of the COVID-19 pandemic and the resultant disturbances to production activities appear to have affected the ongoing recovery somewhat during the third quarter of 2021.

“Sri Lanka is collecting information on remittances coming through unofficial channels and action will be taken to curb the practices.

“We have been collecting information on these activities. We will take action against people who are doing wrong.

“Some clearing houses are also making ‘mirror image’ transactions. Action is also being taken against this activity.

“Decreasing expatriate workers going out as well as the higher rates on unofficial channels are contributing to this situation.

“A plan was put in place to give extra benefits, such as pensions, to encourage remittances from official channels.

“Already, a Rs 2 extra payment is being made. Remittances fell to 353.2 million US dollars in September 2021, from 702.7 million US dollars last year.”

According to the CBSL report, the external sector remains resilient against strong headwinds although Inflation accelerated recently mainly due to supply side disturbances and the surge in commodity prices internationally.

Considering the current and expected macroeconomic developments, the Monetary Board was of the view that the current policy interest rates are appropriate.