The Central Bank of Sri Lanka has cut key rates to aid growth. File
| Photo Credit: Reuters

Sri Lanka’s central bank cut interest rates by 25 basis points in a surprise decision on July 24 to support economic growth and propel the South Asian nation out of its worst financial crisis in decades.

The Central Bank of Sri Lanka (CBSL) reduced the Standing Deposit Facility Rate to 8.25% and the Standing Lending Facility Rate to 9.25%, it said in a statement.

“The Board underscored the need to signal its desire to continue eased monetary conditions to sustain the revival of economic activity towards the full potential, in the absence of significant inflationary pressures,” the CBSL said.

Nine out of 14 economists and analysts polled by Reuters had predicted the monetary authority will keep interest rates unchanged to hedge against political uncertainty.

The central bank had also reduced rates by 50 basis points in March as it continued an easing cycle that has seen rates drop by 725 bps since June last year, partially reversing the 1,050 bps in increases since April 2022.

Sri Lanka’s economy is expected to grow 3% in 2024 after Colombo secured a $2.9 billion lending programme from the International Monetary Fund (IMF) early last year.

The island’s economy shrank 7.3% in 2022 and 2.3% last year after a record shortfall of dollar reserves and huge debt sparked a severe financial crisis.