Sri Lanka cuts rate for second time, aiding economic recovery

July 06, 2023 (MLN): Sri Lanka cut its benchmark rate for the second consecutive meeting as faster disinflation gave policymakers the space to focus on recovery from the worst economic crisis in seven decades, as Bloomberg reported.

The Central Bank of Sri Lanka lowered the standing lending facility rate by 200 basis points to 12%, according to a statement on its website on Thursday.

“The board arrived at the decision following a careful analysis of the current and expected developments, including faster than envisaged disinflation process,” the central bank said in a statement on Thursday.

The decision comes after recent developments cleared the way for further easing, including the latest price print showing the inflation rate halving in June and a local debt revamp.

The strategy mostly left out domestic commercial banks, bolstered the Srilankan rupee, and sent the nation’s stock and dollar bonds surging.

Lowering policy rates further would ease pressure on treasury yields and make debt obligations cheaper.

The details of Sri Lanka's debt restructuring with foreign bondholders and bilateral creditors still need to be hammered out.

Sri Lanka's economy shrank at a slower pace last quarter as fresh funds eased widespread shortages.

Authorities are implementing reforms to strengthen the island nation's fiscal health and bring in price stability ahead of the first review of the nation's $3 billion International Monetary Fund loan program, around September this year.

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