Sri Lanka cuts interest rates as IMF delays loan
Posted on October 5th, 2023
Courtesy www.bssnews.net
COLOMBO, Oct 5, 2023 (BSS/AFP) – Crisis-hit Sri Lanka cut interest rates by
100 basis points Thursday as the second instalment of an IMF bailout was held
up after the government missed several loan conditions.
The Central Bank of Sri Lanka (CBSL) said it reduced the benchmark lending
rate to 11 percent as year-on-year inflation fell sharply last month to 1.3
percent, compared to a peak of nearly 70 percent a year earlier.
The latest policy rate reduction came as the government failed to secure the
second tranche of $330 million out of the $2.9 billion four-year bailout
agreed with the International Monetary Fund in March.
Colombo had hoped to get the second instalment last month after the first
review of the IMF program.
However, the international lender noted that Sri Lanka had, among other
things, fallen short of the agreed revenue targets and needed to increase tax
collection.
Sri Lanka was also yet to finalise a restructuring plan with its private and
bilateral lenders after defaulting on its $46 billion external debt in April
last year.
CBSL said it hoped the latest rate cut, which comes on top of two in June and
July, would help revive the economy.
“The financial sector is urged to pass on the benefits of the continued
easing of monetary conditions to individuals and businesses adequately and
swiftly, thereby supporting the envisaged rebound of the economy,” the bank
said.
The IMF said last week that Sri Lanka’s economy had shown early signs of
stabilisation, but recovery was “not yet assured”.
Last year, Sri Lanka ran out of cash to pay for even the most essential
imports, leading to shortages of food, fuel and medicines.
The nation’s worst economic crisis also forced then-president Gotabaya
Rajapaksa to step down after months of protests over corruption and
mismanagement.
As the economic crisis worsened, the CBSL began raising rates from early 2022
with a record seven-percentage-point hike in April last year.
The lending rates peaked at 16.5 percent in March and have since been reduced
gradually.