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The Central Bank of Sri Lanka Reduces its Policy Interest Rates by 50 basis points to 6.50 percent and 7.50 percent

Financial News Update: The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 29 January 2020, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points to 6.50 percent and 7.50 percent, respectively.

The Board arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy. This decision supports a continued reduction in market lending rates, thereby facilitating the envisaged recovery in economic activity given the favorable medium-term outlook for inflation, which is well anchored within the 4-6 per cent range.

Global monetary policy continued to remain accommodative amidst concerns over low economic growth

Downward revisions to global growth projections were announced in the January 2020 update of the World Economic Outlook (WEO) of the International Monetary Fund (IMF), owing to weaker than expected growth across emerging market economies, especially India. Global economy is estimated to have grown by 2.9 per cent in 2019 and projected to grow by 3.3 percent and 3.4 percent in 2020 and 2021, respectively.

Meanwhile, global growth prospects have been further threatened by the spread of coronavirus originated in China. In light of subdued global growth and softening inflationary pressures, central banks of advanced economies continued to maintain an accommodative policy stance, while a number of emerging market economy central banks eased monetary policy further thus far in 2020.

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