Many in the banking and other financial sectors are hoping for a rate cut, which is badly needed for the revival of the industrial sector.
Sri Lanka’s national-wide inflation price inflation fell to 4.6 percent in 12 months to July 2023, down from 6.2 percent in June, with food prices deflating 2.5 percent over the year, data from the state statistics office showed
The sixth monetary policy for this year will be announced on Thursday, August 24, the Central Bank said.
The Monetary Board of the Central Bank began relaxing the country’s ultra-tight monetary policy in June by delivering a 250-basis point policy rate cut, which was followed by another 200-basis point policy rate cut in July.
Meanwhile, in early August, the Central Bank (CB) slashed banks’ reserve requirement or the Statutory Reserve Ratio by 200 basis points to accelerate the reduction in lending rates in the economy.
The Central Bank of Sri Lanka (CBSL) has already cut interest rates twice in 2023, and financial experts expect more cuts to come.
There are a few reasons why the CBSL is likely to continue cutting interest rates. First, inflation has been slowing in recent months.
The annual inflation rate was 25.2% in May, down from 35.3% in April.
The CBSL expects inflation to reach single-digit territory by the third quarter of 2023.
Second, the economy is showing signs of recovery.
The GDP contracted by 1.6% in the first quarter of 2023, but is expected to grow in the second quarter.
The CBSL is hoping that lower interest rates will help to boost economic growth.
Finally, the CBSL is under pressure from the International Monetary Fund (IMF).
The IMF has agreed to provide Sri Lanka with a bailout package but has conditioned the bailout on the CBSL cutting interest rates.