Sri Lanka central bank keeps policy rates unchanged

COLOMBO: Sri Lanka's central bank kept interest rates steady on Tuesday, in line with market expectations, to help control inflation as new taxes put upward pressure on expenses. The Central Bank of Sri Lanka (CBSL) maintained the Standing Deposit Facility Rate at 9% and the Standing Lending Facility Rate at 10%, as predicted by a Reuters poll.

CBSL said the decision was to maintain inflation at the targeted level of 5% over the medium term, while enabling the economy to reach its potential. "The Board took note of the effects of the recent developments in taxation and supply-side factors that are likely to pose upside pressures on inflation in the near term," the CBSL said in the statement.

"However, the Board viewed that the impact of these developments would not materially change the medium-term inflation outlook." The central bank slashed interest rates by 650 basis points last year as Sri Lanka's economy began a painful recovery from its worst financial crisis more than seven decades, helped by a bailout by the International Monetary Fund (IMF).

At the start of 2024, the island nation raised its value added tax (VAT) to 18% from 15% to meet revenue targets under the four-year $2.9 billion IMF programme.