Sri Lanka’s Central Bank further relaxes monetary policies
The Monetary Board of the Central Bank of Sri Lanka (CBSL) last week decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points each, to 4.50 per cent and 5.50 per cent, respectively.
The CBSL has stated that the Board had 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, which 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, the CBSL has noted.
The Bank has further noted that 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.
OSL take:
The CBSL is currently formulating the country’s economic policies to support Sri Lanka’s businesses. Sri Lanka is known for its ease of doing business environment in the country when compared with South Asian countries and the CBSL move has made the island more conducive for business. Sri Lanka’s geographical positioning in the Indian Ocean, ease of doing business environment and the many trade agreements as well as trade concessions enjoyed by the country have helped Sri Lanka build itself as a hub in the South Asian region.
| Article Code : | VBS/AT/21072020/Z_4 |