Central Bank in key talks with the IMF

The Central Bank and the Government have begun working closely with the International Monetary Fund (IMF) to formulate a sustainable solution to overcome the macroeconomic challenges faced by the country at present, the Central Bank said today.

The Bank also said that negotiations to obtain bridging financing have already commenced with interested counterparties.

Meanwhile, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held today (Friday) has decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700 basis points to 13.50 per cent and 14.50 per cent, respectively, effective from the close of business on 08 April 2022.

The Board, having noted the inflationary pressures that could further intensify in the period ahead, driven by the build-up of aggregate demand, domestic supply disruptions, exchange rate depreciation and the elevated prices of commodities globally, was of the view that a substantial policy response is imperative to arrest the buildup of added demand driven inflationary pressures in the economy and preempt the escalation of adverse inflationary expectations, to provide the required impetus to stabilise the exchange rate and also to correct anomalies observed in the market interest rate structure.

The Monetary Board was of the view that a comprehensive set of policy measures, along with other initiatives that have an impact on the overall economy, is essential to safeguard stability on all fronts and to counter economic headwinds.

Accordingly, after carefully considering the current and expected macroeconomic developments both globally and domestically, the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 08 April 2022, decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700 basis points to 13.50 per cent and 14.50 per cent, respectively, effective from the close of business on 08 April 2022.

The Monetary Board also decided to remove caps imposed on lending interest rates applicable to credit cards, pre-arranged temporary overdrafts, and pawning facilities to facilitate the effective transmission of the policy adjustment. The Board noted that such policy and regulatory actions, upon quick transmission, would raise the cost of funds, thereby containing the expansion of money and credit; inducing the return of excessive currency in circulation to the banking system; eliminating interest rate anomalies; easing the pressure on the exchange rate; and containing the build-up of demand pressures in the economy.

Financial institutions are urged to raise interest rates on their products, particularly deposit rates for the benefit of the depositors. In line with the current monetary policy stance, the Central Bank would also continue with the ongoing programme to reduce its holdings of Treasury bills and hence unwind monetary stimulus. (Colombo Gazette)