Sri Lanka Keeps Interest Rate Steady in Governor’s Final Meeting

(Bloomberg) -- Sri Lanka kept its benchmark interest rate unchanged for a second month as it tries to balance a slowing economy with rising inflation.

In his final policy meeting before his departure, Governor Indrajit Coomaraswamy held the standing lending facility rate at 8%, the Central Bank of Sri Lanka said in a statement Friday. That was in line with forecasts of eight of the 10 economists surveyed by Bloomberg, with one predicting a rate cut of 25 basis points and another expecting a 50-basis-point cut.

Key Insights

• The standing deposit facility rate was left unchanged at 7%, while the statutory reserve ratio was kept at 5%
• The policy meeting was the first since Gotabhaya Rajapaksa won the Nov. 16 presidential election on a platform to boost national security and resurrect the ailing economy. The interim cabinet approved a plan to cut the value-added tax rate to 8% from 15%, in addition to several other measures to kickstart demand
• Growth slowed to a more than five-year low of 1.6% in the quarter ended June, while inflation accelerated to 5.4% in October, the fastest pace since August 2018
• Coomaraswamy, who took office in July 2016, will leave his post next month for personal reasons. After raising interest rates to a five-year high earlier in his term, he cut rates twice this year to revive growth after a series of bomb attacks in April weighed on the economy

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

©2019 Bloomberg L.P.