Daily Times

COLOMBO: Sri Lanka raised its key interest rate by 50 basis points on Thursday, saying it was necessary to discourage excessive consumer spending and head off a balance of payments crisis.
The Central Bank of Sri Lanka raised its benchmark lending rate from 8% to 8.5 %, the second increase – within five months – after Sri Lanka secured a $1.5 billion bailout from the International Monetary Fund (IMF) to address the country’s widening trade deficit and shore up foreign reserves.
“The continued appetite for bank credit by the private sector in spite of the upward movement in market interest rates could create excessive demands and high inflation in the economy in the future,” the bank warned in its monthly review.
Sri Lanka faced an impending balance of payments crisis last year as the government, elected in January 2015, sought to implement election pledges of higher public sector salaries and lower fuel and utility prices and encourage imports.
It began drawing down the first instalment from the $1.5 billion IMF bailout in June. The island of 21 million enjoyed blistering economic growth rates, averaging more than 8% for two years after a prolonged civil war ended in 2009.
But the pace of expansion has since slowed, falling to 4.8% in 2015, down from 4.9% in the previous year, according to official data. In 2009, Sri Lanka received $2.6 billion from the IMF to boost its financial reserves, which dropped below $1 billion when the fighting between rebels and troops was at its highest.