The Governor of the Central Bank of Sri Lanka (CBSL), Dr. Nandalal Weerasinghe says that increasing policy interest rates leads to a rise in market interest rates.

Speaking at a media briefing today (26), the CBSL Governor stated that the main objective of raising policy rates is to influence market lending rates upward.

He explained that the move is intended to reduce excessive borrowing in the economy.

The CBSL Governor further said that the economy has not experienced any contraction so far and is expected to continue growing over the next two quarters.

He noted that the current situation is different from the 2022 economic crisis, where contraction occurred amid severe macroeconomic instability.

Weerasinghe added that the economy recorded around 4% growth and has continued on a positive trajectory since 2023.

He emphasized that the current monetary policy aims to manage excess demand while maintaining economic growth.

Meanwhile, he also warned that new taxes on vehicle loans could lead to artificially higher vehicle prices in the market.

He further stated that increased borrowing requirements could place additional debt burdens on consumers and pose risks to both borrowers and financial institutions.

To reduce such risks, the loan-to-value ratio has been lowered from 50% to 40%, the CBSL Governor added.