At its meeting on July 6, 2022, the Monetary Board of the Central Bank of Sri Lanka decided to raise the Central Bank’s Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) by 100 basis points, to 14.50% and 15.50%, respectively.
Given the recent higher-than-expected rise in headline inflation and the increased persistence of high inflation in the near term, the Board concluded that further monetary policy tightening would be required to contain any buildup of adverse inflation expectations.
In riving at this decision, the Board weighed the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term.
On balance, the Board was of the view that this policy adjustment would help guide inflation expectations to be anchored around the targeted level of headline inflation over the medium term, while curtailing any build-up of underlying demand pressures in the economy.