The Sri Lankan Central Bank has cut a key lending rate by 50 points to 8%, the fourth consecutive cut since December 2012.
The move is thought to be designed to encourage growth, after inflation fell to its lowest level in nearly two years.
The bank said it expected the economy to grow 7.2% in 2013, up from 6.4% in 2012.
"Economic growth is expected to accelerate further during the new year, while inflation is projected to remain in mid-single digits," the bank said in a statement.
The bank also said the country's trade deficit had narrowed to US$7.8bn by the end of 2013.
"The external sector is also envisaged to improve further, with the expected recovery in advanced economies and structural measures adopted domestically to strengthen the sector," the bank said.
Remittances from Sri Lankans working abroad also grew, increasing Sri Lanka’s foreign reserves to US$7.1bn in December, up from US$6.8bn in October.
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