The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has decided to reduce the Overnight Policy Rates (OPR) by 25 bps to 7.75%, easing monetary policy further.
According to the CBSL, the Board arrived at this decision at its meeting held yesterday after carefully considering the developments both domestically and globally.
The Board is of the view that this measured easing of monetary policy stance will support steering inflation towards the target of 5%, amidst global uncertainties and current subdued inflationary pressures.
Deflationary conditions have begun to ease since March 2025, as predicted. The latest projections show signs of a more gradual pickup in inflation in the near term than previously anticipated. Accordingly, inflation is expected to turn positive in the early third quarter of 2025 and gradually align with the target thereafter. Core inflation is also expected to increase gradually in the coming months from current low levels. Inflation expectations are also aligning with the inflation target.
Recent leading economic indicators reflect sustained progress in domestic economic activity. However, global uncertainties, which could have implications for Sri Lanka, have escalated since the time of the previous monetary policy review.
Meanwhile, most market interest rates have stabilised at lower levels. With the current policy easing, the Board expects further downward adjustments in lending rates. Credit flows to the private sector remain strong, with key economic sectors benefitting from such expansion. This credit expansion is expected to continue throughout the year, with further support from the latest easing.
Thus far during the year, the external sector performance remains robust. This is supported by inflows in the form of earnings from tourism and workers’ remittances, despite the widening of the trade deficit. Continued net forex purchases by the Central Bank helped strengthen the official reserves amidst debt servicing and other forex outflows. The Sri Lanka rupee recorded some depreciation against the US dollar so far during the year, following two years of annual appreciation against major currencies.
The CBSl said the Board will carefully assess incoming data on the domestic and global fronts and take measures, as appropriate, to ensure that inflation stabilises around the target of 5%, while supporting the economy to reach its potential. The release of the next regular statement on the monetary policy review will be on 23 July 2025. (Newswire)