Sri Lanka increases key interest rates to 21-year high to fight inflation

In an effort to fight inflation due to the ongoing economic crisis, the Monetary Board of the Central Bank of Sri Lanka’s decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 100 basis points to 14.50 per cent and 15.50 per cent, respectively.

This was done to tackle the rising domestic inflation, the bank said, adding that these rates are at the highest in 21 years, reports Xinhua news agency.

The central bank said that they had noted a higher-than-expected increase in headline inflation recently.

The high inflation is expected to remain in the period ahead, thus the Monetary Board was of the view that a further monetary policy tightening would be necessary to contain any build-up of adverse inflation expectations.

The central bank said that the policy adjustments would help Sri Lanka stabilise its inflation to between 4 and 6 percent in the medium term.

The bank said that they considered the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far-reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term.

The bank raised rates by 700 basis points in April but made no further moves at its previous policy meeting in May.

It comes as annual inflation hit a record high of 54.6 per cent June as the cost of food rose by more than 80 per cent amid the crisis.

The island nation of 22 million people has witnessed its foreign exchange reserves shrink due to economic mismanagement and the impact of the Covid-19 pandemic.

As a result it has struggled to pay for imports of essential goods, including fuel, food and medicine.

In May, it defaulted on its debts for the first time in its history after a 30-day grace period to come up with $78 million of unpaid debt interest payments expired.

The country is currently in negotiations with the International Monetary Fund (IMF) over a bailout.

Sri Lanka’s government has said it needs $5 billion this year in support from the international community, including the IMF.

–IANS

ksk/

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor