COLOMBO: Sri Lanka’s central bank yesterday cut benchmark lending rates by 50 basis points, saying the move was aimed at encouraging growth despite IMF warnings against monetary easing.
The Monetary Board of the Central Bank of Sri Lanka reduced its key lending rate from 9.0 percent to 8.5 percent and reduced deposit rates from 7.0 to 6.5 percent in the third easing since December.
The bank said the cut would help Sri Lanka achieve economic growth of more than 7.0 percent in 2013, up from 6.4 percent last year. “There is still further space to ease monetary policy in order to harness Sri Lanka’s full economic potential and stimulate the economy to reach a higher growth trajectory in 2014,” the bank said.
The latest cut followed a 50 basis point reduction in key rates in May and a 25 basis-point drop in December.
The move came despite an International Monetary Fund warning last month to focus on improving Sri Lanka’s business climate to achieve higher growth rather than cut rates. The IMF expects growth for the 2013 calendar year to be about 6.5 percent, a full percentage point lower than the central bank’s recent forecast of 7.5 percent.
Sri Lanka’s economy recorded eight percent-plus growth for two straight years after security forces crushed separatist Tamil Tiger rebels in May 2009, but growth has slipped since.
The IMF warned against rate cuts in May, pointing to rising inflation, and it expressed concerns in September over Sri Lanka’s high foreign debt. It said Sri Lanka’s short-term external debt represented 51 percent of the country’s foreign reserves. But the central bank said reserves totalled $7bn at the end of August, enough to cover about four months of imports. AFP