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The Central Bank of Sri Lanka Further Reduces Policy Interest Rates

The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 25 March 2024, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points (bps) to 8.50 per cent and 9.50 per cent, respectively. The Board arrived at this decision following a comprehensive assessment of current and expected domestic and international economic developments, to maintain inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach its potential. In arriving at this decision, the Board took note of, among others, subdued aggregate demand conditions, the lesser-than-expected impact of the recent changes to the tax structure on inflation, favourable near-term inflation dynamics due to the recent adjustment to electricity tariffs, well-anchored inflation expectations, the absence of excessive external sector pressures and the need to continue the downward trajectory in market interest rates. The Board observed that the possible upside risks to inflation in the near term would not materially change the medium-term inflation outlook, as economic activity is projected to remain below par for an extended period. The Monetary Policy Board underscored the need for a swift and full passthrough of monetary easing measures to market interest rates, particularly lending rates, by the financial institutions, thereby accelerating the normalisation of market interest rates in the period ahead.

CBSL senior management to revisit recent salary revision

The recent salary revision for the period 2024-2026 made by the Central Bank of Sri Lanka (CBSL), post the collective agreement between the Governing Board and the employee representatives, created much discourse among the public.

In response to this situation, a majority of the senior management and professionals of CBSL made a collective decision to consider a revision to their salaries. This decision was communicated to the Committee on Public Finance (COPF) on 16th March 2024, prior to and independent of the recommendations made by COPF.

IMF Reaches Staff-Level Agreement on the Second Review of Sri Lanka’s Extended Fund Facility and Concludes the 2024 Article IV Consultation

An International Monetary Fund (IMF) mission visited Sri Lanka during 07 - 21 March 2024 for the second review of the 4-year Extended Fund Facility (EFF) arrangement and the 2024 Article IV consultation. Subsequent to the mission, the IMF staff team and the authorities have reached stafflevel agreement on economic policies to conclude the second review of the IMF-EFF.

Purchasing Managers’ Indices indicate improvements in Manufacturing and Services activities in February 2024

Sri Lanka Purchasing Managers’ Index for Manufacturing (PMI – Manufacturing) recorded an index value of 56.0 in February 2024, indicating a continued expansion in manufacturing activities. This improvement was attributable to the increases observed in all sub-indices.

The expansion in New Orders and Production was mainly driven by the manufacture of food & beverages sector. Many respondents mentioned that they are preparing for the upcoming festive demand. However, New Orders and Production in the manufacture of textiles & apparel sector decreased on a month-on-month basis. Meanwhile, Employment and Stock of Purchases expanded during the month in line with the New Orders and Production. Further, Suppliers' Delivery Time continued to lengthen in February, on par with the expansion in manufacturing activities and prolonged shipping disruptions caused by the Red Sea crisis.


Publication of the Macroprudential Policy Framework

As per the section 63(2) of the Central Bank of Sri Lanka Act, the Central Bank has published the Macroprudential Policy Framework. This publication aims to create awareness among relevant stakeholders about the macroprudential policy making process as well as the role of macroprudential policy in the financial system.

This document explains the objectives and purpose of macroprudential policies; systemic risk surveillance and indicators; macroprudential tools; interactions with other policies of the Central Bank; institutional set-up; and communication of macroprudential stance/systemic risk developments by the Central Bank. This publication will be a useful and reliable source of reference for those who are interested in the macroprudential approach of the Central Bank as the macroprudential authority of Sri Lanka.

The current version of the Macroprudential Policy Framework is available in electronic form and can be accessed through the Central Bank website: 

External Sector Performance - January 2024

The merchandise trade deficit recorded an expansion in January 2024, mainly due to higher import expenditure.

With regard to services trade, notable inflows were observed in January 2024 into sea transport, air transport, and computer and IT/BPO related services compared to January 2023. Meanwhile, major outflows were recorded in the form of air transport, sea transport, and management and consulting services.

Workers’ remittances recorded an improvement in January 2024, compared to the corresponding period of the previous year.

Earnings from tourism recorded the highest monthly value in January 2024 since January 2020.

Foreign investments in the government securities market recorded a net outflow in January 2024.

Gross Official Reserves continued to improve to US dollars 4.5 billion by end January 2024 and the Sri Lanka rupee recorded an appreciation of 4.4 per cent during the year up to 29 February 2024.