Sri Lanka Central Bank to implement Single Policy Rate Mechanism

Governor P. Nandalal Weerasinghe said on January 10 that Sri Lanka's central bank is considering a single policy rate mechanism to improve signalling of its monetary policy stance. Weerasinghe made the remark while announcing the 2024 annual policy statement The central bank's policy is currently guided by two interest rates: the standing deposit facility rate and the standing lending facility rate. He stated that it is now considering focusing on one of those rates.

"We intend to implement the single rate this year." "A single rate will provide more clarity and make implementation easier," he said after the event to Reuters.

The central bank has been mandated to keep headline inflation at 5% for the next three years, with a 2% leeway on either side, according to Weerasinghe. The new monetary policy framework's operative target is the average overnight call money rate, and no change in monetary policy is warranted at this point because inflation expectations remain well anchored, he said.

The Central Bank of Sri Lanka unexpectedly cut rates in November, bringing the total rate cuts since June to 650 basis points, and announced that it would suspend its monetary policy easing in the medium term. Following the worst financial crisis in decades, Sri Lanka experienced record high inflation last year.

Sri Lanka's key inflation rate in December accelerated to 4 per cent from 3.4 per cent in November, latest data showed, but still well below the record high of 70 per cent reached in September 2022 during the depths of the island's economic turmoil.