Sri Lanka’s central bank raises interest rates to curb inflation

COLOMBO, Sri Lanka (AP) — The Central Bank of Sri Lanka has raised its key interest rates to 14.50% and 15.50% in an attempt to contain inflation that has deepened the country’s economic woes.

The recent price hikes have been a blow especially to poor and vulnerable groups in the South Asian country as they endure their country’s worst economic crisis, grappling with severe shortages of essentials such as food, fuel, cooking gas and medicine.

The central bank said it had raised its standing deposit facility rate and standing lending facility rate that it charges commercial banks by 100 basis points each to 14.50% and 15.50%, respectively. .

The bank said it would need to tighten monetary policy further to fully curb inflation, which hit nearly 55% in June.

“Our priority is to bring inflation down to at least a reasonable level as soon as possible. The sooner the better,” central bank governor Nandalal Weerasinghe said. He said inflation could climb to 70 %.

The prices of most basic necessities have tripled in recent months and most people are struggling to afford basic necessities.

About 70% of Sri Lankan households surveyed by UNICEF in May said they had reduced their food consumption. Many families depend on government rice donations and charitable donations.

The central bank said Sri Lanka’s economy contracted 1.6% year-on-year in the first half of 2022. Fuel and power shortages have crippled economic activity in recent months .

Due to severe fuel shortages, Sri Lanka has closed schools for weeks, while the government has asked state employees other than those in essential services to work from home.

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