The rate on the permanent loan facility remained unchanged at 14.50% while the rate on the permanent deposit facility remained stable at 13.50%.
“It is expected that the recent tightening of monetary conditions and the strengthening of monetary policy communication will help anchor public inflation expectations in the period ahead,” the bank said in a statement https://www.cbsl .gov.lk/sites/default/files/cbslweb_documents/press/pr/press_20220519_Monetary_Policy_Review_No_4_2022_e.pdf.
The central bank said inflation will remain high in the near term due to supply pressures, while economic growth will also decline.
This nation of 22 million people is grappling with a devastating economic crisis, as President Gotabaya Rajapaksa’s tax cuts have emptied government coffers, COVID-19 has hit the lucrative tourism industry and rising oil prices have emptied foreign currency reserves.
Foreign exchange reserves have plunged to near zero, leaving Colombo struggling to pay for essentials like fuel, medicine and food.
“The central bank believes that the policy changes it implemented in the last meeting are gradually starting to bear fruit. Market interest rates have also adjusted,” said Uddeshan Jonas, chief strategist at Capital Alliance. Group.
“They will neglect the short-term inflation figures because it is entirely supply-side,” he added.
Inflation hit 29.8% in April as food prices rose 46.6% year-on-year in the island nation.
The policy measures implemented by the central bank should be backed up by adequate and timely policy adjustments by the government, the bank said.
“Urgent measures are needed to restore greater political stability through consensual governance and social harmony,” she wrote.
Central bank governor P. Nandalal Weerasinghe told reporters earlier this month that without a political solution to the current crisis, the bank’s measures to revive the economy would not be successful and that it would resign if stability was not restored in two weeks. (Reporting by Swati Bhat and Uditha Jayasinghe; editing by Christopher Cushing and Raju Gopalakrishnan)