Sri Lanka's central bank on Wednesday announced the first cut in its key interest rate in two years as inflation showed signs of easing.
The bank lowered its benchmark repurchase rate by 25 basis points to 10.25 per cent, its first cut since February 2007.
The cash reserve ratio -- the percentage sum commercial banks must keep on deposit -- was also lowered, to 11.75 per cent.
Inflation, which hit a high of 28.2 per cent in June, has shown signs of easing, with the Colombo consumer price index reporting a lower increase of 21.6 per cent in January.
"Inflation has been on a path of rapid deceleration, benefiting from the absence of upward pressures from international commodity prices and supported by the tight demand management policies put in place by the Central Bank," the bank said in a statement.
Consumer prices are expected to ease further in the coming months in line with the fall in global commodity prices, the bank said after its monthly monetary policy meeting.