The Central Bank of Sri Lanka has taken an unexpected move to reduce its policy interest rates which decide the interest rates of Sri Lanka’s commercial banks, from April 2015 though the government is continuing to borrow heavily to cover its expenditures.

While the Central Bank of Sri Lanka has taken steps to reduce its policy interest rates by 0.5 per cent, it has reduced the new interest rates to 06 and 7.5 per cent.

Sri Lanka’s inflation fell to 0.1 per cent last March while it had remained at 0.6 during February.

With the government’s attempt to increase the threshold of local borrowings through the issue of short-term Treasury Bills having failed recently, it may be forced to issue Treasury Bonds which carries a higher rate of interest than Treasury Bills for its borrowings, point out economic analysts.

Since the period of maturity for Treasury Bills is a year or less, it enables borrowings at lower interest rates like 07 or 7.5 per cent.