Inflation will be down to single digits before year’s end – CBSL Governor

By Hiran H. Senewiratne

Sri Lanka’s inflation level will come down to single digits of between 4 to 6 percent before the end of the year. Consequently, food inflation and non-food inflation will gradually decline from next month, Central Bank Governor Dr Nanadalal Weerasinghe said.

“The Monetary Board noted that the disinflation trend is continuing, with headline inflation reaching single digit levels and domestic economic activity is expected to recover in the second half of 2023 and gradually reach a potential level of economic growth over the medium term, Dr Weerasinghe told the monthly monetary policy review meeting yesterday, held at the Central Bank auditorium, Colombo.

Dr. Weerasinghe added: ‘However, the impact of weather disruptions and modest external demand conditions could weigh on expected growth in the near term.We have 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 11.00 per cent and 12.00 per cent, respectively.

We arrived at this decision following a careful analysis of current and expected developments in the domestic as well as global economy, while noting significant easing of monetary conditions since June 2023.

The external sector remains resilient, allowing a gradual relaxation of balance of payments restrictions. The trade deficit decreased notably during the seven months ending July 2023, with a significant decrease in merchandise imports.

We have decided to adopt targeted administrative measures to reduce specific lending interest rates that are considered to be excessive and direct licensed banks to reduce overall rupee lending interest rates by an appropriate margin in the period ahead.Accordingly, policy interest rates are maintained at their current levels, while measures are introduced to accelerate the reduction of market lending interest rates.

The Monetary Board took note of the downward adjustment of market interest rates in response to monetary policy easing measures implemented thus far and realize the need to allow space for further adjustment of market interest rates swiftly.

However, the Board observed that market interest rates of certain lending products remain excessive and are not in line with the current monetary policy stance.Moreover, the Board anticipates a faster reduction in overall market lending interest rates in line with the recent monetary policy easing measures.

The government has almost met the quantitative targets when it comes to the Domestic Debt Restructuring process recommend by the IMF but there is a slight delay in structural reforms but those issues will be resolved on time.The IMF delegation is due to come to Sri Lanka in September to assess the issue.