Sri Lanka's central bank lowered its key rates unexpectedly to record lows to enhance economic growth amid falling inflation.
The Monetary Board of the Central Bank of Sri Lanka reduced the Standing Lending Facility Rate to 7.50 percent from 8.00 percent and the Standing Deposit Facility Rate to 6.00 percent from 6.50 percent.
The lending rate was lowered for the first time in more than a year. The bank said today it will pursue a relaxed monetary policy stance in months to come.
"Current behaviour of market interest rates is viewed to be inconsistent with the continued low inflation and investments needed to address concerns on economic growth for the year," the bank said.
Inflation is projected to remain at low mid-single digit level in 2015. Therefore, the bank sees further leeway to continue relaxation of monetary policy to encourage economic activities by enhanced credit flows and investments.
The central bank does appear to be in a state of flux that increases the uncertainty in predicting its next move, Krystal Tan, an Asia economist at Capital Economics said.
And there is also a risk that capital outflows, triggered either by parliamentary elections later this year or rate hikes by the US Fed will force the CBSL to reverse course, the economist added.
The central bank last month tightened its monetary policy by reversing an earlier action to impose a lower deposit rate of 5 percent for commercial banks using its standing deposit facility.
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