The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on March 3, 2021, 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 4.50 per cent and 5.50%, respectively.
The Board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts.
The Board noted the recent slowdown in credit disbursements to the private sector and inadequate lending to productive sectors of the
economy, and stressed the need for the financial system to actively lend to productive sectors in order to support the ongoing recovery of domestic production-based economic activity.
The Sri Lankan economy is expected to make a notable recovery in 2021,supported by policy stimulus and improving business sentiments.
Given the low inflation environment, the Central Bank is in the process of actively supporting the Government’s economic agenda focused on developing a production-based economy.
Positive sentiments fuelled by the COVID-19 vaccination drive in the country and the impact of growth-promoting policies are expected to support the economic revival over the short to medium term.
The external sector performance is being closely monitored by the Central Bank The trade deficit contracted by US dollars 2 billion in 2020 benefiting from the notable decline in expenditure on imports, which more than compensated the decline in earnings from exports.
The trade deficit is expected to remain compressed in 2021, supported by appropriate measures taken by the Government. Workers’ remittances continued to increase steadily from mid 2020, recording an annual increase of 5.8 per cent, and a further growth of 16.3 percent in January 2021, from a year earlier.
The tourism sector is expected to gradually recover in 2021 along with the rollout of vaccinations locally and globally. The exchange rate has recorded intermittent volatility, and the Central Bank has taken steps to dampen excessive speculation causing such volatility in the foreign exchange market.
The Sri Lankan rupee has depreciated by 4.5 per cent against the US dollar thus far in 2021following the 2.6 per cent depreciation in 2020. Gross official reserves were estimated at US dollars 4.8 billion, with an import cover of 3.7 months, at end January 2021. Discussions are continuing on securing foreign financing. – CBLS