CBSL’s single policy interest rate mechanism comes into effect today

The Central Bank of Sri Lanka announced it has decided to implement a single policy interest rate mechanism transitioning from its dual policy interest rate mechanism, effective from 27 November 2024.

This marks another significant improvement in the Flexible Inflation Targeting (FIT) framework implemented by the Central Bank.

The announcement of single policy interest rate mechanism was announced in the Central Bank’s Annual Policy Statement in January 2024 and the subsequent announcement in September 2024.

Accordingly, the Central Bank introduces the Overnight Policy Rate (OPR), as its primary monetary policy tool to signal and operationalise its monetary policy stance, it said in a statement.

The OPR will be periodically reviewed and adjusted as needed by the Central Bank to indicate and communicate a change in its monetary policy stance. 

“This transition is expected to enhance the efficiency and effectiveness of monetary policy signaling and transmission to the financial markets and the broader economy,” it said.

With this change, the Central Bank will target to maintain the average weighted call money rate (AWCMR), the rate at which banks transact with each other in the interbank market, at or around the announced OPR. AWCMR will remain the operating target of the Central Bank under its FIT framework.