Sri Lankan central bank keeps interest rates unchanged while waiting for important IMF deal

© Reuters. FILE PHOTO: People walk past the main entrance of the Central Bank of Sri Lanka in Colombo, Sri Lanka March 24, 2017. REUTERS/Dinuka Liyanawatte

By Uditha Jayasinghe and Swati Bhat

COLOMBO (Reuters) – Sri Lanka’s central bank left interest rates unchanged for a third straight meeting on Wednesday, as widely expected, saying the prevailing monetary tightening stance was crucial to tame inflation remained high and economic stability restored.

The island nation of 22 million people, trying to secure a $2.9 billion IMF funding package, is facing its worst economic crisis since independence from Britain in 1948.

The Standing Loan Base Rate was kept steady at 15.50% while the Permanent Deposit Base Rate was left unchanged at 14.50%, remaining at its highest level since August 2001. .

The Central Bank of Sri Lanka (CBSL) said in a statement: “The Board … is of the view that maintaining the current tight monetary policy stance is imperative to ensure that monetary conditions are maintained. currency remains tight enough to contain inflationary pressures. .

“Market interest rates are adjusting as expected, so there is no need to touch on policy rates,” said Udeeshan Jonas, chief strategist at CAL Group.

CBSL raised interest rates by up to 950 basis points between August 2021 and July 2022 to combat soaring inflation. Policymakers are still grappling with challenges on multiple fronts including foreign currency shortages, a devaluation of the rupee, a severe economic downturn and slowing global growth.

The central bank said tightening monetary and fiscal policies would help bring inflation down to desired levels by the end of 2023, while restoring prices and economic stability in the medium term.

After hitting an annual high of 68.9% in September with food inflation rising to 93.7%, consumer inflation fell to 57.2% in December.


The CBSL statement said the external sector remains resilient despite increased challenges and the outlook remains positive with expected improvements regarding “financial security” from creditors. .

Sri Lanka is committed to meeting all of its debt payments and hopes to complete debt restructuring talks in the next six months, central bank chief P. Nandalal Weerasinghe said on Tuesday.

India told the IMF last week that it strongly supports Sri Lanka’s debt restructuring plan, a key endorsement for Colombo as it tries to secure a $2.9 billion program in four years. years with the global lender and shore up its damaged finances.

“It is important for CBSL to be clear in their communications about domestic debt restructuring, regardless of the decision,” said Thilina Panduwawala, head of research at Colombo-based Frontier Research. what the final decision is, since that is the main driver of the risk premium associated with market interest rates.”


The central bank said market interest rates have begun to fall and are expected to fall further.

Interest rates on three-month government securities have fallen to around 30% from a peak of around 32% earlier this month.

“They can only start looking at adjusting policy rates after inflation has turned significantly and the IMF deal is approved,” said Jonas of CAL Group.

Source link


News 7D: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button