Courtesy Nikkei Asia

COLOMBO (Reuters) — The Sri Lankan central bank raised interest rates on Thursday, as expected, shifting its focus to controlling inflation, curbing imports and attracting foreign capital as it looks to build reserves and avoid a potential default later in the year.

The island nation has reiterated its commitment to repaying the entire $4 billion owed to investors in the rest of 2022 but some analysts believe the country could face its first-ever default unless it increases dollar inflows.

As expected by many economists, the Central Bank of Sri Lanka (CBSL) raised the standing deposit facility rate and the standing lending facility rate by 50 basis points (bps) each to 5.50% and 6.50%, respectively.

In its statement, the central bank said the “measures will curtail the possible build-up of underlying demand pressures in the economy, which would also help ease pressures in the external sector, thus promoting greater macroeconomic stability.”

The CBSL had been the first central bank in Asia to tighten policy in the pandemic era by raising rates by 50 bps in August last year and then held rates steady in October and November.