The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 05 July 2023, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 200 basis points (bps) to 11.00 per cent and 12.00 per cent, respectively. The Board arrived at this decision following a careful analysis of the current and expected developments, including the faster-than-envisaged disinflation process and benign inflation expectations in the domestic economy, with the aim of enabling the economy to reach its potential and stabilising inflation at mid-single digit levels in the medium term, while easing pressures in the financial markets. The Board expects that, with this reduction of policy interest rates by 200 bps, and the reduction of policy interest rates by 250 bps in early June 2023, along with the significant reduction of risk premia on government securities witnessed recently, the market interest rates, particularly lending rates, will adjust downwards adequately and swiftly. Therefore, the banking and financial sector is urged to pass on the benefits of this significant easing of monetary policy by the Central Bank to individuals and businesses, thereby supporting economic activity to rebound in the period ahead.

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decreased to 12.0% in June 2023 from 25.2% in May 2023. The decline in the headline inflation is broadly in line with the disinflation path envisaged by the Central Bank of Sri Lanka (CBSL) in April 2023.

After two years, the Food inflation (Y-o-Y) decreased to a single digit level of 4.1% in June 2023 from 21.5% in May 2023, while the Non-Food inflation (Y-o-Y) decreased further to 16.2% in June 2023 from 27.0% in May 2023. Monthly change of CCPI recorded at 0.02% in June 2023 and this marginal change was due to the netting off of price increases observed in the items of Food category, which was 0.41% by the price decreases observed in the Non-Food category, which was -0.39%. The core inflation (Y-o-Y), which reflects the underlying inflation in the economy, decreased to 9.8% in June 2023 from 20.3% in May 2023.