The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has actually chosen to further ease the monetary policy stance and set the recently introduced Overnight Policy Rate (OPR) at 8.00 per cent.With this change, the reliable decrease in the policy interest rate would be around 50 basis points from the existing level of the Average Weighted Call Money Rate (AWCMR), which continues to function as the operating target of the Flexible Inflation Targeting (FIT) framework, the central bank said.The Board arrived at the decision, at its meeting hung on 26 November 2024, to ease the financial policy position following a comprehensive evaluation of current and expected domestic and worldwide financial advancements, consisting of risks and unpredictabilities, to make sure that inflation treads towards the inflation target of 5 percent, while supporting the economy to reach its complete capacity, it said.In particular, with the latest offered incoming data, the critical factors that convinced the Board to further ease monetary policy were the deeper-than-expected deflation conditions in the near term with additional moderation of underlying inflationary pressures and inflation expectations, better-than-expected advancements on the external front, and the lack of additional space offered for a decrease in market financing rates.Effective 27 November 2024, the Central Bank likewise relocated to a single policy rate of interest system from its double policy interest rate mechanism.Accordingly, the Overnight Policy Rate (OPR), set at 8.00 per cent, will serve as the primary monetary policy tool of the Central Bank to indicate and operationalise its financial policy stance henceforth.Moreover, with this transition to the single policy rates of interest mechanism, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will no longer be considered policy rates of interest of the Central Bank.SDFR and SLFR, the rates relevant for standing centers that will continue to be offered for participatory institutions for over night deals with the Central Bank, are linked to the OPR with a margin of 50 basis points.
Appropriately, SDFR and SLFR will be 7.50 percent and 8.50 per cent, respectively.