The Central Bank of Sri Lanka has raised its benchmark interest rates by 25 basis points each for the first time in eight months. CBSL raised the standing deposit facility rate (SDFR) and the standing lending facility rate (SLFR) to 7.25 percent and 8.75 percent, respectively.

Why?

1. The monetary side

CBSL Governor Dr. Indrajit Coomaraswamy says the Central Bank is not ‘entirely happy’ with the development.

“The credit growth has not slowed down as much as we want. and the Monetary base is expanding at a rate we are not comfortable with.”

Governor Coomaraswamy put it down to the government having ‘a bunching of borrowings’ in the first half of 2017, and having to accommodate them. “That is putting pressure on.”, he said.

2. US federal reserve

The US federal reserve has increased their policy rates by 0.25 per cent, said the CBSL Governor. He said Sri Lanka adjusted to the increase to discourage outflows and to intensify inflows.

Dr. Coomaraswamy also put the pressures down to factors like supply disruption, the VAT, price increases and the drought.

“We are not happy with the level of economic activity in the economy. Growth is not as high as we would like it to be. So, we don’t want to choke the economy even more.”, he added

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