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Inflationary pressures ease, Sri Lanka cuts rates as expected

By Uditha Jayasinghe and Swati Bhat

COLOMBO (Reuters) – Sri Lanka’s central bank cut its key interest rate by 70 basis points on Thursday, as inflation continues to rise. After the IMF bailout, the focus returned to the recovery of economic growth, in line with expectations.

The Central Bank of Sri Lanka (CBSL) has reduced the standing deposit facility rate and the standing lending rate from 200 to % and % before % and 13%. This followed a cut of 200 basis points at the last policy meeting in June.

Last year, the island nation plunged into crisis as foreign exchange reserves depleted and food and energy problems spiraled. Last July, protest mobs forced the ouster of then-president Gotabaya Rajapaksa.

The central bank raised interest rates by a record 950 basis points last year to curb inflation and increased by

basis points on March 3.

President Ranil Wickremesinghe took office in July and negotiated a $2.9 billion bailout package with the IMF in March.

CBSL said in a statement that it “urges the banking and financial sector to pass on the benefits of this significant monetary easing to individuals and businesses, thereby supporting a rebound in economic activity in the period ahead.”

Sri Lanka’s main inflation index peaked at 13% year-on-year in September, and then gradually fell back. % for June.

Dimantha Mathew, Head of Research, First Capital, CBSL said it would try to implement a domestic debt restructuring plan as soon as possible.

“Now that they’re cutting rates fast, they’re going to issue long-term bonds and lower the cost of borrowing for the government. Borrowing costs will be at 11% -13% because interest rates will start to come down,” he added.



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