The article examines how changes in interest rates and bank lending impact the economy in Sri Lanka. By analyzing different channels of monetary policy, the researchers found that interest rates have the strongest effect on output, leading to a decrease of 0.6 percent after the second quarter. Bank lending also plays a significant role, adding 0.2 percentage points to the impact of policy rates on both output and prices. However, the exchange rate and asset price channels do not have a significant effect on the economy in Sri Lanka.