Sri Lanka holds rates steady as policy clarity from new president awaited Reuters

COLOMBO (Reuters) – Sri Lanka’s central bank kept interest rates unchanged on Friday, in line with expectations, as the island nation awaits policy clarity after electing a new president to steer it out of its worst financial crisis in decades .

The Central Bank of Sri Lanka (CBSL) kept the Standing Deposit Facility Rate at 8.25% and the Standing Lending Facility Rate at 9.25%.

“The board observed that inflation is likely to remain well below the 5% target over the next few quarters, with potential deflation in the immediate future driven by changes in administratively determined prices and easing supply conditions,” the CBSL said in a statement. . .

The CBSL cut rates by 25 basis points in July as part of an easing cycle that saw rates fall by a total of 7.25 percentage points from June 2023, partially reversing the 10.50 percentage point hikes made to deal with the financial crisis.

Millions of Sri Lankans voted on Saturday to elect Marxist-leaning lawmaker Anura Kumara Dissanayake as president, drawn by his pledges to cut taxes, fight corruption and lower the cost of living.

Dissanayake dissolved parliament on Tuesday and hopes to strengthen his hold on the 225-member chamber when a general election is held on November 14. His coalition held only three seats in the parliament elected in August 2020.

The IMF said on Tuesday it would work with Dissanayake and discuss the timing of the third review of the current program with Sri Lanka “as soon as possible”.

Dissanayake said on Wednesday he plans to immediately begin negotiations with the International Monetary Fund (IMF) to push ahead with the country’s $2.9 billion bailout program, which has helped cool inflation, stabilize the rupee and rebuild reserves.