Sri Lanka’s central bank raised the policy rate by 100 basis points yesterday (March 3),
Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank to 15.50% and 16.50% respectively in line with the IMF requirements. This is the highest recorded interest rates in Sri Lanka since 2001.
CBSL raised its policy interest rates from 4.5% to 14.5% from August 2021 to July 2022 and have not increased it until now.
The interest rate increase was done according to the intense negotiations held with the IMF on monetary policy.
CBSL press release states that, this decision demonstrates Sri Lanka’s commitment to the IMF-EFF arrangement, which has been pursued by the Government in order to ensure stability in the economy on multiple fronts.
According to Bloomberg, IMF has defended the increase in interest rates stating,
The rate increase shows the central bank’s “commitment to reduce inflation more quickly and firmly towards the single-digit target,” senior mission chief Peter Breuer and mission chief Masahiro Nozaki said in an emailed statement. “Durable disinflation would help boost market confidence, reduce excessive risk premia and ease the financing conditions for the corporates, especially the small and medium enterprises, which supports recovery.”
IMF has also defended Sri Lanka’s tax reforms, increasing taxes, stating that,
“Tax reforms are needed to correct this imbalance,” the IMF’s Peter Brauer said in a statement.
“Only with appropriate tax receipts will the Government will be able to fund essential expenditures, and avoid further slashing of critically important outlays.”
“These reforms will also help regain confidence of creditors”
by Daily News Sri Lanka
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