Photo: collected
Sri Lanka slashed interest rates by 100 basis points on Thursday, as the second installment of an IMF bailout was delayed due to the government's failure to meet numerous loan terms.
The Central Bank of Sri Lanka (CBSL) dropped the benchmark lending rate to 11% as year-on-year inflation fell drastically to 1.3 percent last month, from nearly 70 percent a year earlier.
The latest policy rate cut comes as the administration fails to receive the second $330 million tranche of the $2.9 billion four-year bailout agreement reached with the International Monetary Fund in March.
Colombo had intended to get the second installment after the first review of the IMF program last month.
However, the international lender underlined that Sri Lanka had fallen short of agreed-upon income projections and needed to enhance tax collection.
After defaulting on its $46 billion external debt in April last year, Sri Lanka had yet to finalize a restructuring plan with its private and bilateral lenders.
CBSL expressed hope that the latest rate drop, which follows two in June and July, would help resuscitate the economy.
"The financial sector is urged to pass on the benefits of the continued easing of monetary conditions to individuals and businesses adequately and swiftly, thereby supporting the envisaged rebound of the economy," the lender stated.
Last week, the IMF stated that Sri Lanka's economy had exhibited early signs of stabilization, but that recovery was "not yet assured."
Last year, Sri Lanka ran out of cash to pay for even the most basic imports, resulting in food, fuel, and medication shortages.
After months of protests over corruption and mismanagement, the country's worst economic crisis led then-President Gotabaya Rajapaksa to resign.
As the economic crisis deepened, the CBSL began hiking rates in early 2022, beginning with a seven-percentage-point increase in April of last year.
Lending rates reached a high of 16.5 percent in March and have since been gradually decreased.
.png "Halim-&-Firni")
