Central Bank surprisingly cuts key rates by 50 basis points

COLOMBO (News1st): The central bank has announced that it has further reduced policy rates by 50 basis points with effect from May 6, to support economic activity. Issuing a statement, the monetary authority noted that the Standing Deposit Facility Rate and the Standing Lending Facility Rate have been reduced by 50 basis points respectively. "With this decision, policy interest rates of the Central Bank have been reduced by 150 basis points thus far in 2020," the central bank said. The monetary authority urged financial institutions to reduce lending rates immediately, citing that market lending rates have not declined this year. However, a treasury bill auction this week saw the average yield for three and six-month bills being increased slightly, while around Rs 10.3 billion worth of 12-month bills were undersold, as Sri Lanka has printed Rs 115.6 billion in April. The central bank first cut policy rates in August last year, after a careful analysis of expected developments in the domestic economy and the financial market as well as the global economy. Sri Lanka's economic growth is expected to decline to 1.5 percent in 2020, dropping for the fifth consecutive year, due to the impact of the novel coronavirus, according to the central bank.