Sri Lanka made its second consecutive interest rate cut as the country's inflation rate begins to stabilize after a severe economic crisis, Reuters reported. The focus has now shifted toward revitalising economic growth following a bailout from the International Monetary Fund (IMF).

The Central Bank of Sri Lanka (CBSL) has reduced its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) from 13 per cent and 14 per cent to 11 per cent and 12 per cent, respectively. This 2 per cent reduction follows a 2.5 per cent cut during the previous policy meeting in June. Last year, Sri Lanka faced a crisis when it depleted its foreign exchange reserves, leading to skyrocketing food and energy prices. In July, protests resulted in the resignation of then-President Gotabaya Rajapaksa.

Tackling Inflation After Infamous Political Unrest

To combat inflation, the central bank raised interest rates by a record 950 basis points last year and increased them by an additional 100 basis points on March 3. However, President Ranil Wickremesinghe, who assumed office in July, negotiated a $2.9 billion bailout from the IMF in March to address the economic challenges.

The CBSL issued a statement urging the banking and financial sector to pass on the benefits of the monetary policy easing to individuals and businesses, thereby supporting economic activity and promoting a rebound. Sri Lanka's key inflation index peaked at 70 per cent year-on-year in September but gradually decreased to 12 per cent in June.

Reuters cited Dimantha Mathew, the head of research at First Capital, who highlighted the CBSL's intention to swiftly implement a domestic debt restructuring plan. He explained that with the rapid reduction of interest rates, the government would issue long-term bonds to lower borrowing costs. Mathew predicted that borrowing costs would decline to between 11 per cent and 13 per cent as rates continue to trend downward.

Factors Affecting Recovery

Although economic activity in Sri Lanka remained subdued in the second quarter of 2023, the CBSL expects a gradual recovery toward the end of the year. Factors contributing to this recovery include:

<ul>
	<li>Policy normalization</li>
	<li>Improved supply conditions</li>
	<li>Relaxation of import restrictions</li>
	<li>Enhanced foreign exchange liquidity</li>
</ul>

The central bank also anticipates that this recovery will gradually close the large negative output gap in the economy and lead to the attainment of the economy's potential level of growth over the medium term.

Analysts predict that more rate cuts will occur in the coming months to support economic recovery and reduce borrowing costs for both corporations and the government. Reuters cited Thilina Panduwawala, head of research at Frontier Research, who stated that the CBSL's confidence in the inflation trajectory and foreign inflows is instrumental in supporting the economy through lower interest rates. Panduwawala's projection is for the SLFR to reach 10 per cent by the end of the year, implying the likelihood of two more 100 basis point cuts during the remainder of the year.

(With Inputs from Reuters)

Sri Lanka made its second consecutive interest rate cut as the country's inflation rate begins to stabilize after a severe economic crisis, Reuters reported. The focus has now shifted toward revitalising economic growth following a bailout from the International Monetary Fund (IMF).

Sri Lanka made its second consecutive interest rate cut as the country's inflation rate begins to stabilize after a severe economic crisis, Reuters reported. The focus has now shifted toward revitalising economic growth following a bailout from the International Monetary Fund (IMF). The Central Bank of Sri Lanka (CBSL) has reduced its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) from 13 per cent and 14 per cent to 11 per cent and 12 per cent, respectively. This 2 per cent reduction follows a 2.5 per cent cut during the previous policy meeting in June. Last year, Sri Lanka faced a crisis when it depleted its foreign exchange reserves, leading to skyrocketing food and energy prices. In July, protests resulted in the resignation of then-President Gotabaya Rajapaksa. Tackling Inflation After Infamous Political Unrest To combat inflation, the central bank raised interest rates by a record 950 basis points last year and increased them by an additional 100 basis points on March 3. However, President Ranil Wickremesinghe, who assumed office in July, negotiated a $2.9 billion bailout from the IMF in March to address the economic challenges. The CBSL issued a statement urging the banking and financial sector to pass on the benefits of the monetary policy easing to individuals and businesses, thereby supporting economic activity and promoting a rebound. Sri Lanka's key inflation index peaked at 70 per cent year-on-year in September but gradually decreased to 12 per cent in June. Reuters cited Dimantha Mathew, the head of research at First Capital, who highlighted the CBSL's intention to swiftly implement a domestic debt restructuring plan. He explained that with the rapid reduction of interest rates, the government would issue long-term bonds to lower borrowing costs. Mathew predicted that borrowing costs would decline to between 11 per cent and 13 per cent as rates continue to trend downward. Factors Affecting Recovery Although economic activity in Sri Lanka remained subdued in the second quarter of 2023, the CBSL expects a gradual recovery toward the end of the year. Factors contributing to this recovery include: Policy normalization Improved supply conditions Relaxation of import restrictions Enhanced foreign exchange liquidity The central bank also anticipates that this recovery will gradually close the large negative output gap in the economy and lead to the attainment of the economy's potential level of growth over the medium term. Analysts predict that more rate cuts will occur in the coming months to support economic recovery and reduce borrowing costs for both corporations and the government. Reuters cited Thilina Panduwawala, head of research at Frontier Research, who stated that the CBSL's confidence in the inflation trajectory and foreign inflows is instrumental in supporting the economy through lower interest rates. Panduwawala's projection is for the SLFR to reach 10 per cent by the end of the year, implying the likelihood of two more 100 basis point cuts during the remainder of the year. (With Inputs from Reuters)

Chasing Growth: Sri Lanka unleashes second round of interest rate cuts

Sri Lanka on Saturday (April 16) halted share trading for five days after&nbsp;a hike in interest rates by its central bank.

The island nation, which has a population of 22 million, has been rocked by its economic crisis since independence.

Demonstrators are protesting all across Sri Lanka against the rise in fuel and food prices along with power cuts that are lasting for up to 13 hours a day.

<div class="videoWrapper trancodeVideo"><iframe allowfullscreen="" autoplay="1" class="includeVideo" frameborder="0" height="350" src="https://www.wionews.com/videos/bankrupt-sri-lanka-rations-fuel-as-economic-crisis-worsens-471335/embed" style="width:100%;max-width:560px;" width="560"></iframe></div>

They are demanding the “tyrant and nepotist government” of President Gotabaya Rajapaksa to step down.

A protester Dani Karunanathan told news agency Reuters, "We are sick and tired of this tyranny because there is so much of nepotism here. The prime minister and president are brothers and we really want them to go away from here."

Officials of the Colombo Stock Exchange have expressed concern over the "ability to conduct an orderly and fair market."

It has doubled its benchmark interest rate to 14.5 per cent owing to the "present situation in the country".

Also read |&nbsp;<a href="https://www.wionews.com/south-asia/sri-lankas-debt-default-process-has-begun-warn-credit-rating-agencies-471065" hreflang="en">Sri Lanka’s debt ‘default process has begun’, warn credit rating agencies</a>

According to governor P. Nandalal Weerasinghe, "The rate hike will give a strong signal to investors and markets that we are coming out of this as soon as possible."&nbsp;

"I want to be very clear that my message is not one of blind positivity. Things are challenging and we need to take decisive action. Things will get worse before they get better, but we need to apply the breaks to this vehicle before it crashes," he added.

"The President and I are spending every moment to formulate solutions on how to get Sri Lanka out of this current crisis," said Sri Lanka's Prime Minister Mahinda Rajapaksa.

The country's newly appointed finance minister, Ali Sabry is coordinating with the International Monetary Fund and World Bank to negotiate a financial package.

Former justice minister Sabry said, "I'm willing to do this as long as it takes."&nbsp;

Sri Lanka has declared a default on its external debt worth $51 billion during the traditional New Year holiday.

"We cannot step away from repaying debt because the consequences are terrifying. There is no alternative, we must restructure our debt," Sabry said.

(With inputs from agencies)

Sri Lanka on Saturday (April 16) halted share trading for five days after a hike in interest rates by its central bank. The island nation, which has a population of 22 million, has been rocked by its economic crisis since independence.

Sri Lanka on Saturday (April 16) halted share trading for five days after a hike in interest rates by its central bank. The island nation, which has a population of 22 million, has been rocked by its economic crisis since independence. Demonstrators are protesting all across Sri Lanka against the rise in fuel and food prices along with power cuts that are lasting for up to 13 hours a day. They are demanding the “tyrant and nepotist government” of President Gotabaya Rajapaksa to step down. A protester Dani Karunanathan told news agency Reuters, "We are sick and tired of this tyranny because there is so much of nepotism here. The prime minister and president are brothers and we really want them to go away from here." Officials of the Colombo Stock Exchange have expressed concern over the "ability to conduct an orderly and fair market." It has doubled its benchmark interest rate to 14.5 per cent owing to the "present situation in the country". Also read | Sri Lanka’s debt ‘default process has begun’, warn credit rating agencies According to governor P. Nandalal Weerasinghe, "The rate hike will give a strong signal to investors and markets that we are coming out of this as soon as possible." "I want to be very clear that my message is not one of blind positivity. Things are challenging and we need to take decisive action. Things will get worse before they get better, but we need to apply the breaks to this vehicle before it crashes," he added. "The President and I are spending every moment to formulate solutions on how to get Sri Lanka out of this current crisis," said Sri Lanka's Prime Minister Mahinda Rajapaksa. The country's newly appointed finance minister, Ali Sabry is coordinating with the International Monetary Fund and World Bank to negotiate a financial package. Former justice minister Sabry said, "I'm willing to do this as long as it takes." Sri Lanka has declared a default on its external debt worth $51 billion during the traditional New Year holiday. "We cannot step away from repaying debt because the consequences are terrifying. There is no alternative, we must restructure our debt," Sabry said. (With inputs from agencies)

Sri Lanka stops share trading after a hike in interest rates

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Chasing Growth: Sri Lanka unleashes second round of interest rate cuts

Sri Lanka stops share trading after a hike in interest rates