Central Bank cuts policy rates

September 11, 2009 5.20 pm: The Central Bank today decided to reduce policy interest rates by 50 basis points each. From the close of business today the Repurchase rate and the Reverse Repurchase Rate would be 8% and 10.50% respectively.
The decision made at the monthly review of interest rates by the Monetary Board today follows two months of no rate reduction.
Current projections also indicated that inflation on a year on year basis would be at low single digit levels even by the end of 2010. Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002), has remained around 1% during the last three months. While inflation is expected to gradually rise to moderate levels in the approaching months, it is projected to remain at single digit levels during the rest of 2009.
A statement issued by the bank explained that although the monetary policy stance of the Central Bank has gradually relaxed with short term interest rates declining with the policy rate reduction, there has not been an appreciable reduction in lending rates in general and credit flows to the private sector had not picked up as desired. The bank expects the decision to further cut rates would signal to the market the need for further reductions in market interest rates and expansion in credit to the private sector.
The statement added that economic prospects for Sri Lanka had improved considerably during the past few months. “With the contraction in the world economy now widely believed to have bottomed out, the scope for domestic economic activity is now even wider. During the first six months of this year, the Central Bank eased its monetary policy stance in several steps to support domestic economic activity, in view of the sharp decrease in inflation, the improved outlook for inflation and the significant slowdown in domestic economic activity in the face of the global economic downturn.”