Sri Lanka Central Bank Cuts Interest Rates

Sri Lanka's central bank unexpectedly cut interest rates by 25 basis points, reducing the Standing Deposit Facility Rate to 8.25% and the Standing Lending Facility Rate to 9.25%. This decision, made in the absence of significant inflationary pressure, aims to support economic recovery from the nation's severe financial crisis. Analysts were divided, with only nine out of fourteen expecting a rate cut, while others anticipated rates would remain unchanged due to political uncertainty. The central bank's easing cycle has led to a total reduction of 7.25 percentage points since June 2023, following a 50 basis point cut in March. The economy is projected to grow by 3% in 2024, bolstered by a $2.9 billion IMF program, following a contraction of 7.3% in 2022 and 2.3% in 2023. Inflation has significantly decreased, falling to 1.7% in June from a peak of 70% in September 2022.