Sri Lanka first to raise interest rates in Asia
The Central Bank of Sri Lanka (CBSL) raised its interest rates to combat inflationary pressures and high imports that contributed to the rupee’s 8% devaluation this year. It was the first central bank in Asia to do so.
The CBSL increased the existing deposit facility rate and lending facility rate by 50 basis points each, making them 5.00% and 6.00%, respectively.
The statutory reserve ratio was also raised by 200 basis points to 4% with effect from Sept. 1.
The central bank said the move was to address the imbalances in the external sector of the economy and to avoid the emergence of any undue inflationary pressures in the medium term.
The Sri Lankan economy is gradually improving and is expected to grow at a faster rate in the second quarter of 2021, owing in part to the base effect.However, it could weaken in the second half driven by more virus breakouts.