Crisis-hit Sri Lanka turns to dovish rates to boost recovery

Colombo, June 1 (EFE).- Sri Lanka’s central bank Thursday cut the key policy interest rates by 250 basis points to boost the island’s economic growth amid a slowing inflation pace.

The central bank has maintained a tight monetary policy after excess money printing under the previous government in a low-interest rate regime led to hyperinflation last year amid a record growth contraction of 7.8 percent.

The bank’s Monetary Board decided to ease “monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures, and further anchoring of inflation expectations,” the central bank said in a statement.

“The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity in 2022, while easing pressures in the financial markets,” said the statement.

The country declared sovereign debt default in April last year as it ran out of foreign currency to repay its loans.

The International Monetary Fund has agreed to a $3-billion four-year loan while the island nation is negotiating with its creditors for debt restructuring.

Inflation has started to decelerate faster than projected earlier, supported by the lagged impact of tight monetary and fiscal policies. EFE

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