The Central Bank of Sri Lanka lowered its benchmark rates by 100 basis points on Thursday citing faster deceleration of inflation.
The Standing Deposit Facility Rate and the Standing Lending Facility Rate were reduced by 100 basis points to 10.00 percent and 11.00 percent, respectively.
The bank has reduced the key rates by 450 basis points so far this year.
The bank expects a swift and sizeable decline in overall market lending rates in line with the policy easing steps.
The board said it will continue to assess risks to the inflation outlook and stand ready to take appropriate measures to maintain domestic price stability in the period ahead while supporting the economy to reach its potential.
Headline inflation is forecast to stabilize at the target rate of 5 percent over the medium term as reflected by the latest projections of the central bank. Driven by declines in food and non-food inflation, inflation based on the Colombo Consumer Price Index, decelerated notably to 1.3 percent in September.
The economy is projected to record a positive annual growth, in the latter half of 2023, underpinned by a broad-based expansion in all major economic sectors.
As inflation remains low and the economy still very depressed, further monetary policy easing is likely over the coming months, Capital Economics' Gareth Leather said.
The interest rate reduction announcement came after the government failed to secure the second tranche of the bailout from the International Monetary Fund. The $3 billion bailout was agreed in March.
