CBSL continues accommodative monetary policy stance

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on May 19, 2021, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 per cent and 5.50 per cent, respectively.

The Board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts. In the context of the prevailing low inflation environment and well anchored inflation expectations, and the renewed challenges posed by the third wave of the COVID-19 pandemic, the Board remains committed to maintaining the current accommodative monetary policy stance to support the sustained revival of the economy.

The third wave of the COVID-19 pandemic has disrupted the ongoing recovery of economic activity

The Sri Lankan economy, which rebounded notably during the second half of 2020 and early 2021 as per available indicators, is experiencing renewed disruptions due to the emergence of the third wave of the COVID-19 pandemic and related preventive measures, including isolations. While its adverse effects on economic activity are expected to be lesser than during the first two waves due to the selective nature of mobility restrictions and the ongoing vaccination drive, the third wave has once again highlighted the disruptive nature of the pandemic and the challenges faced in sustaining the economic recovery amidst the pandemic. It has also highlighted the need for continued fiscal and monetary support to place the recovery process on a firm footing.

The external sector remains resilient despite a multitude of challenges The merchandise trade deficit widened in March 2021, driven by a higher increase in expenditure on imports than the increase in earnings from exports. Meanwhile, the notable increase in workers’ remittances continued during the period from January to April 2021, over the corresponding period of the previous year. However, the recent surge in the global spread of COVID-19, could affect the recovery of the tourism industry, while posing renewed challenges to the external sector. (CBSL)