The Central Bank of Sri Lanka (CBSL) has decided to maintain the policy interest rates at their current levels.
Issuing a statement, the CBSL said the Monetary Board of the Central Bank of Sri Lanka, at its meeting held yesterday (17), 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 14.50 per cent and 15.50 per cent, respectively.
In arriving at this decision, the Board considered the latest model-based projections, which point toward a larger than expected contraction in activity and a faster than expected easing of price pressures, compared to the previous monetary policy review. Contractionary monetary and fiscal policies already in place, alongside the measures to curtail non-urgent import expenditure, are expected to result in a notable contraction in credit to the private sector and possible upside risks to unemployment in the near term.
The Board was of the view that despite headline inflation being projected to remain elevated in the near term, the policy measures taken by the Central Bank and the Government thus far would help contain any aggregate demand pressures, thereby anchoring inflation expectations, along with the anticipated decline in global commodity prices and its passthrough to domestic prices in the period ahead.
Global economic growth is expected to slow at a faster pace
As per the July 2022 update of the World Economic Outlook (WEO) of the International Monetary Fund (IMF), global economic growth is estimated to moderate to 3.2 per cent in 2022 from 6.1 per cent recorded in 2021. Tighter financial conditions adopted by central banks around the world following the emergence of inflationary pressures, a slowdown in Chinese economy due to the resurgence of COVID-19, among others, and further negative spillovers from the geopolitical tensions in Eastern Europe have dampened global growth prospects. Global inflation remains Economic Research Department 18.08.2022 2 high mainly due to elevated energy and food prices as well as supply-demand imbalances, while downside risks emerge in the outlook for global inflation in the near to medium term.
Domestic economic activity is expected to record a notable downturn (NewsWire)