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Central Bank raises rates to curb inflation

24 March 2017 09:55 am - 12     - {{hitsCtrl.values.hits}}

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The Monetary Board decided to increase the key policy interest rates of the Central Bank, namely the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 25 basis points each, to 7.25 per cent and 8.75 per cent, respectively, with effect from today (24).

 “The Monetary Board, at its meeting held on 23 March 2017, was of the view that further tightening of monetary policy is necessary as a precautionary measure, in order to contain the build-up of adverse inflation expectations and the possible acceleration of demand side inflationary pressures through excessive monetary and credit expansion,” the Central Bank said in a statement today.

The Bank raised the interest rates for the first time in eight months.

“The Monetary Board also took into account the notable improvements in fiscal operations, which have resulted in the overall budget deficit in 2016 declining to envisaged levels. The Board was of the view that these improvements, together with the substantial upward movements already observed in market interest rates, have reduced the required adjustment in policy interest rates.”

Meanwhile, Reuters news agency said that the fourth tightening step in 16 months comes two weeks after the International Monetary Fund urged authorities to tighten monetary policy amid heavy foreign outflows from government securities this year.

“Policymakers face a tricky balancing act as the rupee has come under renewed pressure, hurt by capital outflows, but a rate hike is likely to further slowdown an already fragile economy. Growth slowed to a three-year low of 4.4 percent in 2016, easing from 4.8 percent the previous year,” it said.

"There are external pressures like the U.S. raising interest rates, bond outflows and IMF pressure are there to tighten monetary policy," Yohan Samarakkody, head of research, SC Securities (Pvt) Ltd, told Reuters, but added the pace was a bit too fast.

But the central bank said in a statement the move was necessary "to contain the build-up of adverse inflation expectations and the possible acceleration of demand side inflationary pressures through excessive monetary and credit expansion".

A Reuters poll this week showed economists were split on a possible rate hike.
The IMF on March 7 urged the central bank to tighten monetary policy if credit growth or inflation do not abate.

The central bank last tightened monetary policy in July.

Sri Lanka's private sector credit growth remains stubbornly high, which has exacerbated inflation. Credit grew 20.9 percent year-on-year in January, compared with 21.9 percent in December.

Inflation in February hit a record high, pushed up by the impact of a lingering drought.

Pix by Pradeep Dilrukshana

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  Comments - 12

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  • Nihal Amarasekera Friday, 24 March 2017 02:29 PM

    Can't understand. Will it raise the liquor prices once again and again and again.

    Ranjan Friday, 24 March 2017 05:09 PM

    In an expert language all this is because of the loot by Mahendran at Central Bank. Paid high interest rates to son-in-laws` firm. It jacked up th interest rate. Any laymen will understand this gimmik.

    aravinda Friday, 24 March 2017 05:13 PM

    The theory behind increasing interest rates to curb inflation is, when interest rates are increased, consumers tend to have less money to spend. With less spending, the economy slows and inflation decreases. This is not going to work because our country does have a strong economy to begin with. Our country needs low interest rates since that will help people to borrow money and spur economic growth.

    sobers Friday, 24 March 2017 05:24 PM

    It is bad decision making, arrogance, corruption and no vision for the future, which has bought up the crisis. Believe me, the worse is to come. We have lost the export market for minor crops, c.o.p on Garment is on the increase, Foreign investment doesn't attract due to poor motivation, corruption, bad infrastructure and indicipline with strikes, protests, traffic jams etc.... all these are due to our political leaders.

    JANS Friday, 24 March 2017 06:21 PM

    whos Responsible for this massive down fall to our EconomyWhy taking so long after two years passed Bring them imprisoned confiscated their wealth via DM Android App

    Citizen Friday, 24 March 2017 07:03 PM

    Mahendran robbed the country and now the economy is in ruin.

    concern Friday, 24 March 2017 07:10 PM

    Keep on blaming the previous government for your satisfaction;

    Arnold Friday, 24 March 2017 11:38 AM

    In layman's language the government has no money to pay interest on the massive loans taken by MR regime for useless projects and therefore the government is paying more interest to the locals who are willing to lend money to the government. And the irony of the matter is there is still no way to find MR's loot.

    Aruna Friday, 24 March 2017 08:12 PM

    Alas! Still in belief of fairy tails made to come into power!

    Srinath Friday, 24 March 2017 12:10 PM

    thank you for making things simple. its good this way to be understood by the masses. via DM iOS App

    raj Friday, 24 March 2017 12:29 PM

    In the unique context of Sri Lanka raising interest rates doesn't contain inflation. it's never worked. Instead everything ends going up in price with producers increasing prices because in the absence of alternative funding they just have to continue borrowing and then the rupee also depreciates. So everything will go up in prices. To contain inflation time has come to cut non value adding public expenditure..no of ministries and ministers no of departments/institutions no of government employees have to be reduced and even the meaningless projects..I personally believe free education should be only till A/L.After that they are adults they should work and pay for their studies like in other countries. Basically time to cut the fat where the fat has accumulated the most. Text books will say raise rates to curb inflation but like I said before Sri Lanka is weirdly unique and it's time to address the root cause..

    patta Friday, 24 March 2017 01:12 PM

    Some people thinking that country is in current downfall due to previous government has looted. But its not the exact story. many bad decisions in the present regime has led this downfall. increase public servants salary by minimum of 10,000 was first move started this downfall and foreign policy is also played big role.


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See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.