Central Bank cites easing inflation, weaker external demand as reasons for rate cut

The Central Bank (CB) said it eased monetary policy on Thursday (22) due to a lower-than-anticipated inflation path and weaker-than-expected aggregate demand, stemming from geopolitical uncertainties following the imposition of broad-based tariffs on the United States' (US) trading partners.

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The CB trimmed its Overnight Policy Rate (OPR), its key policy rate to signal the direction of monetary policy, by 25 basis points on Thursday, contrary to broader expectations that rates would be held unchanged.

As a result, the standing facility rates of the Central Bank—the Standing Lending Facility Rate and the Standing Deposit Facility Rate—were reduced by the same amount, to 8.25 percent and 7.25 percent respectively. The two standing facility rates are maintained at margins of plus or minus 50 basis points from the OPR.

Explaining the rationale behind the move, Central Bank Governor Dr. Nandalal Weerasinghe said the outlook had shifted on two fronts since the last monetary policy meeting in March, creating space for a rate cut at the most recent meeting.