Sri Lanka's Central Bank on Tuesday reduced lending rates, a move seen by analysts as one to encourage economic growth.
The bank said the repurchase rate has been reduced by 25 basis points to seven percent while the reverse repurchase rate reduced by 50 basis points to 8.50 percent.
"The government looks to encourage investment", said Thusath de Silva an analyst.
"The encouragement of substantial and sustained private sector participation would be vital", the Central Bank said in a statement.
The bank said the inflation has eased, while acknowledging that prices of some selected food items increased.
Sri Lanka's annual average inflation in 2010 was put at 5.9 percent.
The bank said the Sri Lankan rupee has been stable, cushioning the high costs of imported commodities.
Since middle of 2009 the Sri Lankan government has introduced a series of imports tariff reductions aimed at driving growth in the conflict-free environment after the long-standing civil war ended in May 2009.