Sri Lanka raises interest rate to 8.75%

Sri Lanka has raised its standing lending facility rate by 25 basis points to 8.75 per cent in the first rate hike since July.

Following its Thursday meeting, the Central Bank of Sri Lanka announced this morning it opted to raise rates “in order to contain the build-up of adverse inflation expectations and the possible acceleration of demand side inflationary pressures through excessive monetary and credit expansion”.

The standing deposit facility rate was also increased by 25 basis points to 7.25 per cent.

The bank said headline inflation measured by the Colombo Consumer Price Index rose 6.8 per cent year-on-year in February, against a 5.5 per cent increase in January. It put the inflation rise down to drought conditions and changes to the country’s tax structure.

It expects inflation to return to mid-single digits “in the period ahead and stabilise thereafter”.

Economic growth in the country slipped in 2016 to 4.4 per cent from 4.4 per cent in the previous year.