CB gets hyper with rate cuts

• Reduces rates by 25 basis points marking third rate cut this year 
• CB hopes loosening monetary policy will counter COVID-19 impact 
• Announcement comes nearly a week early

The Central Bank yesterday decided to reduce rates even further by an additional 25 basis points, the monetary authority said in a statement.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will be reduced by 25 basis points to 6% and 7%, respectively, effective from the close of business yesterday.

“This decision will complement the measures taken thus far to ease market conditions, and enable the domestic financial market to provide further relief to businesses and individuals affected by the outbreak of the COVID-19 pandemic and restrictions placed to contain its spread within the country,” the statement added. 

The unexpected rate change was done nearly a week ahead of the next monetary policy update, which was scheduled for 9 April. The latest policy change is the third done by the monetary authority this year. In January, the Central Bank cut rates by 50 basis points, and on 17 March, reduced rates by another 25 basis points. 

At the time the Central Bank explained that the move was necessary to defend against the repercussions of COVID-19, which has dimmed Sri Lanka’s growth prospects and forced down growth projections from 4% or above at the start of the year to a less rosy 3.5% or lower. Sri Lanka grew by 2.6% in 2019.

The Central Bank also said it would not hold the customary monetary policy meeting on 9 April. Monetary Board members and policymakers will be hoping that the latest round of loosening monetary policy will limit slowdown and push for a faster recovery once the pandemic is under control, experts said. However, the impact of the multiple rate cuts will also depend on how fast Sri Lanka and the rest of the world can return to normal economic activity.