• Thu. Sep 22nd, 2022

Sri Lanka doubles interest rates to check inflation; stabilize the economy

 (Reuters) – Sri Lanka’s central bank on Friday doubled its key interest rates, an unprecedented 700 basis points each, to cushion the rise in inflation caused by a crippling shortage of basic commodities driven by a devastating economic crisis. increased.

The heavily indebted country has little money left to pay for imports, meaning supplies of fuel, electricity, food and, increasingly, medicines are running out.

Despite a five-day state of emergency and a two-day curfew, street protests have been going on for more than a month.

The Monetary Board of the Central Bank of Sri Lanka (CBSL) increased its permanent credit facility (LKSLFR=ECI) to 14.50% and its permanent deposit facility (LKSDFR=ECI) to 13.50%.

CBSL in its Monetary Policy Decision Statement said increase in aggregate demand, disruption in domestic supply, depreciation in the local currency and higher commodity prices at global level could keep inflation under pressure.

“The rate hike will send a strong signal to investors and markets that we are coming out of this at the earliest,” Governor P. Nandlal Veerasinghe said at a post-policy briefing.

independent central bank

Weerasinghe said that he wants to run the central bank freely without any outside influence and he has been empowered to do so by the President and asked to expedite measures to get the country out of the current crisis.

“I want to be very clear that my message is not of blind positivity. Things are challenging and we need to take decisive action. Things will get worse before they get better, but we need to apply the brakes before this vehicle crashes.” is,” he added.

Inflation came in at 18.7% in March.

One analyst had expected a rise of up to 400 basis points.

Thilina Panduvawala, Head of Economic Research at Frontier Research, said, “With monetary policy tightening now finally clear, the IMF and the forum to take the next important step with regard to debt restructuring and articulate this at the international level.” is ready.”

Finance Minister Ali Sabri had earlier said the country should immediately restructure its debt and seek external funding, while the main opposition threatened a no-confidence motion in the government and business leaders warned exports could collapse.

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