Sri Lanka’s central bank has introduced a new single policy rate of 8% to support the country’s ongoing economic recovery from a severe financial crisis. The Central Bank of Sri Lanka (CBSL) announced the move to simplify its interest rate mechanism by replacing the existing rate corridor with an overnight policy rate.
This change effectively reduces the policy interest rate by 50 basis points from the current Average Weighted Call Money Rate (AWCMR), the bank’s operating target under the Flexible Inflation Targeting framework. Previously, CBSL maintained two key rates, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), which will no longer serve as policy rates.
The policy adjustment comes as Sri Lanka continues its economic revival, bolstered by a $2.9 billion International Monetary Fund (IMF) programme secured in March 2023. The country also initiated a critical $12.55 billion bond restructuring process this week, with bondholders given until December 12 to vote on the proposal to exchange existing bonds for new ones.
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