The Central Bank of Sri Lanka (CBSL) became the first in Asia on Thursday to raise interest rates since the pandemic began, as it acted to stem inflationary pressures and high imports, one of the factors behind the rupee's 8% depreciation this year.
The central bank increased the standing deposit facility rate and the standing lending facility rate by 50 basis points each to 5.00% and 6.00%, respectively."These decisions were made with a view to addressing the imbalances on the external sector of the economy and to preempt the buildup of any excessive inflationary pressures over the medium term, amidst improved growth prospects," CBSL said in a statement.
"Available indicators and projections suggest that the real economy would grow over 5% in 2021, and this momentum could be sustained over the medium term," it said. Latest data showed the July Colombo consumer price based inflation rose 5.7% compared with June's 5.2% while the National CPI had risen 6.1% in June.CBSL said the stimulus measures taken after the pandemic hit the economy resulted in low cost credit which, in turn, led to a sustained increase in imports.
"Moreover, the expected recovery in the tourism industry could be further delayed due to uncertainties associated with the resurgence of the pandemic globally," it added.
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