CBSL reduces monetary policy rate, sets 8% overnight rate

The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has decided to further ease its monetary policy stance by setting the newly introduced Overnight Policy Rate (OPR) at 8.00 percent.

With this change, the effective reduction in the policy interest rate will be approximately 50 basis points from the current level of the Average Weighted Call Money Rate (AWCMR), which continues to serve as the operating target under the Flexible Inflation Targeting (FIT) framework, the Central Bank said.

The Board made this decision at its meeting on November 26, 2024, after a comprehensive assessment of current and expected domestic and international economic developments, including risks and uncertainties. The move aims to ensure inflation aligns with the target of 5 percent while supporting the economy to reach its full potential.

“In particular, the latest available data revealed critical factors that convinced the Board to further ease monetary policy, including deeper-than-expected deflation in the near term, further moderation of underlying inflationary pressures and expectations, better-than-anticipated external sector developments, and the limited scope for additional reductions in market lending rates,” the statement said.

Effective November 27, 2024, the Central Bank transitioned from a dual to a single policy interest rate mechanism. The Overnight Policy Rate (OPR), set at 8.00 percent, will now serve as the primary monetary policy tool to signal and implement the monetary policy stance.

With this transition, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will no longer be considered policy interest rates. Instead, these rates, applicable to standing facilities for overnight transactions with the Central Bank, will be linked to the OPR with a margin of ±50 basis points. Accordingly, SDFR and SLFR will be 7.50 percent and 8.50 percent, respectively.