The Central Bank of Sri Lanka (CBSL) has announced the implementation of a new monetary policy framework starting today, November 27, 2024.
The Central Bank is moving from a dual interest rate system to a single policy rate mechanism, specifically the Overnight Policy Rate (OPR). This change is expected to offer more flexibility in managing inflation.
As part of the Central Bank's Flexible Inflation Targeting (FIT) framework, the OPR will now serve as the main tool for signaling the country's monetary policy stance. The OPR will be reviewed periodically and adjusted as necessary to reflect changes in the monetary policy.
This shift is aimed at improving the effectiveness and efficiency of monetary policy signalling, making it easier to transmit changes to financial markets and the economy. The move was first mentioned in the Central Bank's Annual Policy Statement in January 2024 and confirmed in September 2024, marking a significant step in the country's monetary policy strategy.
