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AFP

Colombo:Sri Lanka’s central bank cut its benchmark interest rate on Thursday, the first reduction in six months, with signs that the crisis-hit nation was emerging from its worst economic downturn.

The single policy rate was reduced by 25 basis points to 7.75 percent, the Central Bank of Sri Lanka said in a statement, following a review by its Monetary Board.

“This measured easing of the monetary policy stance will support steering inflation towards the target of 5.0 percent, amidst global uncertainties and current subdued inflationary pressures,” the statement said.

“Recent leading economic indicators reflect sustained progress in domestic economic activity,” it said.

The South Asian country, which declared a sovereign default on its $46 billion external debt in April 2022, has restructured its bilateral loans and international bonds, giving it more time to repay.

Inflation, which peaked at nearly 70 percent in September 2023, has dropped sharply and the country has been experiencing deflation since September last year.

The International Monetary Fund, which granted a $2.9 billion bailout loan in early 2023, says Sri Lanka is slowly emerging from its crisis and that the economy has turned around, although risks remain.