Sri Lanka Lowers Interest Rates Ahead of IMF Bailout

Article Date: 
22 Apr 2009

Sri Lanka’s central bank reduced interest rates for the fourth time in as many months to bolster an economy growing at the weakest pace since 2001.

The Central Bank of Sri Lanka cut the repurchase rate to 9 percent from 10.25 percent and lowered the so-called penal rate to 13 percent from 14.75 percent, according to a statement on the bank’s Web site today. The Colombo-based central bank left its reverse repurchase rate unchanged at 11.75 percent.

Governor Nivard Cabraal is taking advantage of slowing inflation to lower rates before the International Monetary Fund imposes conditions on the island in return for a proposed emergency loan of as much as $1.9 billion. The Sri Lankan rupee has dropped 2.9 percent in the past week to a record low amid concern an agreement with the IMF may be delayed.

“Inflation is tapering off and that is enabling the monetary authorities to further reduce interest rates,” said Bimanee Meepagala, an analyst at Eagle NDB Fund Management Co. in Colombo.

Sri Lanka is seeking financial aid from the IMF and others to pay for debts as a three-decade conflict with the Liberation Tigers of Tamil Eelam draws to an end. Lower rates may encourage lenders to extend cheaper loans to stimulate consumer spending in the $32 billion economy, buffeted by the collapse of overseas sales amid the global recession and waning domestic demand.

Article Author: 
Kartik Goyal
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