Airtel continues investments with BOI to upgrade Sri Lankan telco infrastructure

By Hiran H.Senewiratne

The current policy rate at which money is injected into the market is 15.50 per cent and we may use administrative controls to bring down the rate as and when inflation comes down, Central Bank Governor Dr Nandalal Weerasinghe said.

“Market rates are now about double those of policy rates. But they are half the historical inflation rate and have been negative in real terms for several months. We could expect a moderation of excessive market interest rates, in line with the prevailing monetary policy interest rates, Dr Weerasinghe said at the CBSL’s Monetary Board policy review meeting held yesterday at the Central Bank auditorium.

The Governor said that the Board noted with concern the anomalous rise in market interest rates, particularly deposit interest rates and short-term lending interest rates, despite the recent improvements in overall money market conditions and their adverse implications for business and economic activity.

Dr. Weerasinghe added: “If an appropriate downward adjustment in the market interest rates would not take place in line with the envisaged disinflation path, the Central Bank will be compelled to impose administrative measures to prevent any undue movements in market interest rates.

“We noted that the headline inflation marked a turnaround and is expected to come down in the future.

“Therefore, the Central has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 14.50 per cent and 15.50 per cent, respectively.

“In arriving at this decision, the Board considered the latest macroeconomic conditions, expected developments and macroeconomic projections.

“The maintenance of a tight monetary policy stance is necessary to contain any demand-driven inflationary pressures in the economy, while helping to further strengthen disinflation expectations, thus enabling to steer headline inflation towards the targeted level of 4-6 per cent over the medium term.

“The Central Bank is of the view that the prevailing tight monetary policy stance is necessary to rein in any underlying demand pressures in the economy.

“Supported by favorable supply side developments and tight monetary policy measures, headline inflation pivoted towards the envisaged disinflation path in October 2022, after passing the peak in September 2022.

“The Central Bank expects domestic economic activity to remain tepid during 2022 and make a gradual, yet sustainable recovery, supported by envisaged improvements in supply conditions, improved market confidence and corrective policy measures being implemented to stabilize economic conditions.

“The Central Bank Monetary Board reiterates its continued commitment to restoring price stability and ensuring financial system stability, and remains confident that inflation would follow the projected disinflation path underpinned by the prevailing monetary policy stance, while supporting the economy to reach its potential over the medium term.”

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