By Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka’s central bank held its overnight policy rate steady on Wednesday to cement a stronger economic recovery for the country hit by its worst financial crisis in decades.
The decision comes just days ahead of the new government’s first full-year budget due to be presented in Parliament next month.
The Central Bank of Sri Lanka (CBSL) moved to a single policy rate – the overnight policy rate which was set at 8% in November, shifting away from its dual policy rate regime of setting a Standing Deposit Facility Rate (SDFR) and a Standing Lending Facility Rate (SLFR).
The decision was in line with market expectations as 11 out of 13 analysts and economists polled by Reuters had predicted the monetary authority will maintain its policy stance due to benign inflation and stronger growth.
“This decision was made with a medium-term view of ensuring that inflation converges to the target of 5%, while supporting the economy to reach its potential,” CBSL said in its statement.
Sri Lanka’s economy crumpled under a severe foreign exchange crisis in 2022, but has posted a faster-than-expected recovery after it secured a $2.9 billion International Monetary Fund programme in March 2023 and completed a $25 billion debt restructuring in December.
The current period of deflation, as projected earlier, has largely been an outcome of administratively determined energy price reductions, CBSL said.
“This trend is expected to continue over the next few months before inflation begins adjusting towards the targeted level in the second half of 2025,” it added.
(Reporting by Uditha Jayasinghe, editing by Swati Bhat)
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