ECONOMYNEXT – Sri Lankas central bank under its newly appointed Central Bank Governor Nandalal Weerasinghe has raised its policy rate at which money is printed by 700 basis points to 14.50 percent to slow the economy, reduce imports and stabilize the currency.
Sri Lanka had low interest rates, including rates below the the interbank dollar yield as shown by swap discounts.
The higher rates will encourage the sale of dollars.
The hike is the highest since a 300 basis point increase by then-Governor A S Jayewardene on 18.01.2001 before a float of the currency.
The full statement is reproduced below:
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 08 April 2022, decided to increase the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700 basis points to 13.50 per cent and 14.50 per cent, respectively, effective from the close of business on 08 April 2022.
The Board, having noted the inflationary pressures that could further intensify in the period ahead, driven by the build-up of aggregate demand, domestic supply disruptions, exchange rate depreciation and the elevated prices of commodities globally, was of the view that a substantial policy response is imperative to arrest the buildup of added demand driven inflationary pressures in the economy and preempt the escalation of adverse inflationary expectations, to provide the required impetus to stabilise the exchange rate and also to correct anomalies observed in the market interest rate structure.