News Today: Central Bank transitions to single interest rate policy mechanism

The Central Bank of Sri Lanka (CBSL) has announced its transition to a single policy interest rate mechanism, replacing the dual policy system, effective immediately. This move, part of the Central Bank’s Flexible Inflation Targeting (FIT) framework, enhances the efficiency and effectiveness of monetary policy signaling.

The new Overnight Policy Rate (OPR) will serve as CBSL’s primary monetary policy tool to communicate its monetary stance. The OPR will be periodically reviewed and adjusted, guiding the average weighted call money rate (AWCMR) in interbank markets to maintain alignment with policy objectives.

The CBSL first outlined this change in its 2024 Annual Policy Statement and reiterated it in September 2024. By introducing a single policy interest rate, the Central Bank aims to streamline its monetary operations, improve market efficiency, and strengthen financial stability.

A spokesman emphasized that this transition will enhance monetary policy transmission, benefiting financial markets and the broader economy. The Central Bank remains committed to fostering economic stability through clear and effective policy tools.