Sri Lanka cut its benchmark rate for a fourth time this year to help support the economy’s turnaround as inflation bottoms out.
The Central Bank of Sri Lanka lowered the standing lending facility rate by 100 basis points to 10%. Four of six economists surveyed by Bloomberg forecast cuts ranging from 50-100 basis points, while two predicted a hold.
The latest move takes the central bank’s rate cuts since June to 650 basis points as policymakers seek to spur the economy’s recovery following an unprecedented crisis last year. Inflation has slowed sharply to low-single digits from a peak of 70% last year, giving the central bank scope to ease.
Sri Lanka is in the process of restructuring its debt after defaulting last year for the first time in its history. Creditors must now submit proposals for the debt plan to the International Monetary Fund in order for the next loan instalment of $330 million to be made.
Governor Nandalal Weerasinghe said in an interview last week that once uncertainties of the debt restructuring plan are cleared up, he expects the transmission of monetary policy to the broader economy to speed up, and the gap between policy and market rates to narrow.
--With assistance from Tomoko Sato.
