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Further Sri Lanka interest rate cuts unlikely: Moody’s

ECONOMYNEXT – Sri Lanka’s central bank is unlikely to cut interest rates further to avoid triggering withdrawal of funds by foreign investors given rising rates in other economies, rating agency Moody’s Investors Service said.

Credit expansion has decelerated following the previous monetary tightening cycle, Moody’s said in a new report on Sri Lankan banks.

“Following benign inflation, the central bank cut the standing lending facility rate by 25 basis points to 8.50% in April 2018,” said the report which maintained a negative outlook on the banking sector.

“However we do not expect further rate cuts, as rising external interest rates may threaten capital outflows.”

The Sri Lankan economy remains weak and asset quality is deteriorating, Moody’s said in its report.

The government’s heavy debt burden and reliance on external borrowing will constrain public investment and elevates the risk of capital outflows, it said.

“The government’s debt affordability continues to be weak, and interest repayments eroded 40% of government revenue in 2017.”
(COLOMBO, 06 September, 2018)

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