The Central Bank of Sri Lanka has observed high interest rates charged on lending products and excessively high interest rates offered on deposit products by licensed commercial banks and licensed specialized banks (licensed banks) and Non-Bank Financial Institutions (NBFIs) despite the measures taken to bring down overnight interest rates and enhance market liquidity through the reduction of Statutory Reserve Ratio (SRR). Especially in the context of well contained inflation and inflation expectations, Sri Lanka’s interest rates in real terms also have been found to be excessive in comparison to other regional economies.

Accordingly, the Central Bank has requested licensed banks and NBFIs to reduce interest rates on deposits to accelerate monetary policy transmission through the financial sector, enabling licensed banks to reduce their interest rates on lending products in general, and to SMEs in particular, and thereby enhance credit flows to the real economy.

Headline inflation as measured by the year-on-year change in the National Consumer Price Index (NCPI, 2013=100) increased to 2.9 per cent in March 2019 from 2.4 per cent in February 2019 mainly due to the low base prevailed in the corresponding month of the previous year. Meanwhile, in March 2019, year-on-year Food and Non-food inflation recorded -2.3 per cent and 7.1 per cent respectively.

The change in the NCPI measured on an annual average basis remained unchanged at 1.7 per cent in March 2019.

When monthly change is considered, the NCPI declined by 0.2 per cent in March 2019 with the decrease observed in the prices of the items in the Food category, particularly that of rice, coconut and vegetables. However, within the Non-Food category prices of the items in Alcoholic Beverages and Tobacco; Transport (petrol and diesel); Clothing and Footwear; and Miscellaneous Goods and Services subcategories increased during the month.