Sri Lanka cut its benchmark rate for a third time this year to help revive economic growth and rein in real borrowing costs.
The Central Bank of Sri Lanka lowered the standing lending facility rate by 100 basis points to 11%. Five of the seven economists surveyed by Bloomberg forecast cuts ranging from 50-200 basis points, while two predicted a hold.
The board decided to cut rates on “with the aim of stabilizing inflation at the envisaged 5% level in the medium term, thereby enabling the economy to reach its potential growth,” the central bank said in a statement on Thursday.
The reduction of rates will “accelerate the downward adjustment in market interest rates, particularly lending rates, in the period ahead,” it added.
Low single-digit inflation is giving the central bank room to ease rates after a pause in August and bolster the economy after the worst financial crisis in seven decades. It had cut borrowing costs by a total of 550 basis points since June and slashed lenders’ cash reserve ratios to boost economic activity.
The central bank is driving down borrowing costs in tandem with inflation, which slowed to 1.3% in September from a peak of 70% a year ago. Recovery is high on the agenda as the economy shrank at the slowest quarterly pace in more than a year.
The International Monetary Fund is having more talks with local authorities on Sri Lanka’s $3 billion bailout program, and assessing the nation’s debt restructuring efforts, before releasing further funds. The lender said Sri Lanka was meeting key targets but full economic recovery was not yet assured.
--With assistance from Tomoko Sato.
