Colombo keeps borrowing costs unchanged

Financial trouble: People walk past the main entrance of Sri Lanka’s central bank in Colombo. Sri Lanka defaulted for the first time in May and aims to finalise debt-restructuring talks with international creditors by the second quarter of 2023. — Reuters

COLOMBO: Sri Lanka kept borrowing costs unchanged for a second straight meeting, as the central bank judged the current level of interest rates to be tight enough to nudge inflation down in an economy already in the grip of a recession.

The Central Bank of Sri Lanka (CBSL) held the standing lending facility rate unchanged at 15.5% yesterday, a move predicted by four of five economists in a Bloomberg survey, with one expecting a 150-basis-point increase.

The decision comes as policymakers seek to limit the impact of a deepening economic downturn and crippling shortages, having already raised the key rate this year by 9.5 percentage points to rein in Asia’s fastest inflation.

In tandem with fiscal policy tightening, the central bank sees current monetary measures helping prevent any build-up in demand pressures.

Authorities expect previous rate hikes to help achieve its envisaged disinflation path. Headline inflation, currently at a record nearly 70%, is seen returning to the central bank’s 4% to 6% target over the medium-term, the CBSL said in a statement.

“Subdued aggregate demand pressures resulting from tight monetary and fiscal conditions, expected improvements in domestic supply conditions, normalisation in global food and other commodity prices, and the timely pass-through of such reductions to domestic prices, along with the favourable statistical base effect, will be instrumental in bringing down inflation,” it said. — Bloomberg

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