Sri Lanka holds rates steady, says interest rates must fall

Sri Lanka’s central bank (CBSL) held interest rates steady yesterday, as widely expected, but says it expects a moderation in market interest rates in line with prevailing policy rates.

The Standing Lending Facility rate was held steady at 15.50% while the Standing Deposit Facility Rate was kept unchanged at 14.50%.

“The board was of the view that the prevailing tight monetary policy stance is necessary to rein in any underlying demand pressures in the economy,” the central bank said in a statement, adding it expected a moderation in the excessive market interest rates.

“If an appropriate downward adjustment in the market interest rates would not take place in line with the envisaged disinflation path, the central bank will be compelled to impose administrative measures to prevent any undue movements in market interest rates,” it added.

Thirteen out of 15 economists and analysts polled by Reuters had forecast the central bank’s interest rates to remain unchanged as it waited to see effects of its earlier hikes to filter through to prices and the broader economy.

The CBSL has raised rates by a record 950 basis points this year to battle runaway inflation. The island nation has been grappling with low foreign exchange reserves for most of the year and has struggled to pay for essential imports. Low import supply has triggered soaring inflation. The currency has depreciated sharply.