FX.co ★ Sri Lanka Cuts Policy Rate to 7.75%

The Central Bank of Sri Lanka reduced its benchmark interest rate to 7.75% during its May 2025 meeting, marking the first easing of monetary policy for the year. This move underscores the bank's dedication to achieving a 5% inflation target while bolstering the ongoing economic recovery. Additionally, the Standing Lending Facility Rate and the Standing Deposit Facility Rate were decreased to 8.25% and 7.25%, respectively. The decision follows a period of diminishing deflationary pressures since March, with inflation expected to turn positive by early in the third quarter and gradually align with the desired target. Core inflation and economic expectations are also showing signs of stabilization. Concurrently, strong credit growth in the private sector and declining market lending rates continue to fuel domestic economic activities. On the international front, Sri Lanka's foreign reserves have improved due to net foreign exchange acquisitions, despite an expanding trade deficit. Furthermore, tourism revenues and remittances have helped stabilize the external sector, though the rupee has experienced some depreciation in 2025.