Sri Lanka increases key rates to 21-year high to fight inflation

COLOMBO, July 7 (Xinhua) -- The Monetary Board of the central bank of Sri Lanka decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 100 basis points to 14.50 percent and 15.50 percent respectively on Wednesday.

This was done to tackle the rising domestic inflation, the bank said, adding that these rates are at the highest in 21 years.

The central bank said that they had noted a higher-than-expected increase in headline inflation recently.

The high inflation is expected to remain in the period ahead, thus the Monetary Board was of the view that a further monetary policy tightening would be necessary to contain any build-up of adverse inflation expectations.

The central bank said that the policy adjustments would help Sri Lanka stabilize its inflation to between 4 and 6 percent in the medium term.

The bank said that they considered the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far-reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term.

The bank raised rates by 700 basis points in April but made no further moves at its previous policy meeting in May.