Sri Lanka central bank holds policy rate unchanged

Sri Lanka
By Editor_1
People walk past the main entrance of the Sri Lanka's Central Bank in Colombo, Sri Lanka March 24, 2017. The Central Bank cut its key interest rates by 50 basis points on Tuesday (March 26, 2024) as inflation eased, signalling nation was emerging from a devastating financial crisis and ready for a rebound in growth -Dinuka Liyanawatte/Reuters/File

By Uditha Jayasinghe

COLOMBO – Sri Lanka’s central bank kept its overnight policy rate unchanged on Wednesday (25), ​adopting a cautious stance amid uncertainty over the inflationary impact ‌of energy prices due to the Middle East crisis.

The Central Bank of Sri Lanka (CBSL) maintained the overnight policy rate at 7.75%, as forecast by a ​Reuters poll, citing low inflation and a restrained approach on the ​fallout of the US-Israeli war on Iran.

Inflation is now ⁠expected to reach the central bank’s target of 5% in the ​second quarter of 2026, it said in a statement, after Sri ​Lanka raised fuel prices by about 35% this month.

“However, spillovers from the ongoing conflict could weigh on domestic economic activity in the period ahead should the ​conflict be prolonged,” the bank warned.

CBSL has held rates steady ​since last May as the nation recovers from a 2022 financial crisis driven by ‌a ⁠severe dollar shortage.

Supported by a $2.9 billion program with the International Monetary Fund (IMF), Sri Lanka posted a strong economic recovery last year, growing by 5% and now targeting growth between 4% and 5% in ​2026.

“What stands out ​is that ⁠they see space for inflation to rise because of energy prices but still stay contained,” said Anjali ​Hewapathage, deputy head of macroeconomic research at Colombo-based Frontier ​Research, ⁠referring to CBSL.

“From now to June, underlying economic momentum has the space to keep pace despite the disruption because domestic liquidity and credit ⁠has been ​quite substantial as well.”

An IMF team ​will arrive in Colombo on Friday for the combined fifth and sixth reviews of ​the bailout.

-Reuters

Editor_1
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