Sri Lanka's Central Bank took decisive action on March 25th, 2024, by announcing a reduction in interest rates for the third time.

In a move aimed at stimulating economic activity, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) were both lowered by 0.5%, now standing at 8.5% and 9.5% respectively.

This decision comes after a thorough assessment of Sri Lanka's economic landscape, where subdued demand for goods and services persists amidst expectations of maintaining inflation around the targeted 5% mark in the medium term.

The Central Bank's rationale behind the rate cut lies in its ambition to foster increased borrowing by individuals and businesses, thereby spurring expenditure and investment to facilitate the nation's recovery from the recent economic downturn.

Addressing concerns about recent price hikes, the Bank assured that these were transient and not reflective of excessive demand, thus asserting that lower interest rates wouldn't exacerbate such inflationary pressures.

Moreover, the Bank opted to revoke a previously imposed limit on interest rates charged by banks to borrowers, signaling a shift towards market-driven interest rate determination.

Furthermore, amendments were made to facilitate banks' utilization of the Central Bank's Standing Deposit Facility program, aimed at enhancing liquidity management for financial institutions.

A stern directive was issued by the Bank, urging banks to pass on the benefits of reduced interest rates to their clientele, advocating for lower interest rates on loans extended to both businesses and households.

The Central Bank's latest policy maneuver underscores its proactive stance in addressing economic challenges while instilling confidence in the resilience of Sri Lanka's financial framework.