Central Bank leaves policy rates unchanged as previous cuts take hold

Central Bank Governor Dr. Nandalal Weerasinghe
PIC BY PRADEEP PATHIRANA

• Inflation to remain well under 5% target before likely overshooting from 2H25
• Early evidence shows private credit is accelerating amid easing lending rates
• Says they will shift to single policy rate structure; consultations to begin soon
• Central Bank has delivered a total of 725bps of cuts since current cycle got underway in June 2023

The Central Bank left the key policy rates unchanged yesterday at its fifth monetary policy review for the year, as inflation remains well below its medium-term target of 5.0 percent, while the previous rate cuts are doing their job by way of converting into lower lending rates and credit, helping to further support the economic growth.
The Monetary Policy Board of the Central Bank left the Standing Deposit and Lending Facility rates at 8.25 percent and 9.25 percent, receptively yesterday, two months after it cut the rate in July by 25 basis points.

However, the officials said that they intend to shift to the single policy interest rate structure in the near future, from the current dual anchor policy rates and consultations with the stakeholders would begin soon on its operationalisation.
The Central Bank’s inflation projections have shown that there is even some potential for it to fall to deflation in the immediate future, due to the changes to administratively determined prices and easing supply conditions before likely overshooting from the second half of next year.
It therefore begs the question as to why the Central Bank didn’t cut the rates one more time to prop up growth further, as the current low inflationary environment offered it the wiggle room to ease further.
It appears that the Central Bank weighed the robust economic performance as strong evidence for why they did not think anymore policy cults are needed to support the economy already running at a brisk pace.
“The board noted that the current accommodative monetary policy stance is yielding the expected outcomes, particularly in terms of the continued easing of market lending interest rates, expansion of credit to the private sector and a strong rebound in domestic economic activity amidst a low inflation environment,” the statement issues by the rate setting committee said.
There was strong evidence for the continuous growth in credit and also the economy.
Since the current monetary easing cycle began in June 2023, the Central Bank has delivered a cumulative 725 basis points of cuts with 75 basis points coming in, in 2024.