Courtesy Livemint

Sri Lanka’s central bank said it will start using a single benchmark interest rate to manage monetary policy, starting from its next update on Wednesday, replacing its current system of two rates.

(Bloomberg) — Sri Lanka’s central bank said it will start using a single benchmark interest rate to manage monetary policy, starting from its next update on Wednesday, replacing its current system of two rates. 

The Central Bank of Sri Lanka said in a statement Tuesday that its introducing the Overnight Policy Rate as its primary tool to signal and operationalize its monetary policy stance.” 

This marks another significant improvement in the flexible inflation targeting framework implemented by the central bank,” it said in the statement. This transition is expected to enhance the efficiency and effectiveness of monetary policy signaling and transmission to the financial markets and the broader economy.”

The central bank has been employing two benchmark rates. One is the standing lending facility, which is the maximum it charges to inject overnight liquidity into the banking system. The second is the standing deposit facility, which is the minimum it paid to adsorb excess liquidity overnight. At the last policy review Sept. 27, they were left unchanged at 9.25% and 8.25%, respectively.