Sri Lanka keeps rates steady as policy clarity from new president awaited

COLOMBO (Reuters) – Sri Lanka’s central bank kept interest rates unchanged on Friday in line with expectations as the island nation waits for policy clarity after electing a new president to steer it out of the 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 target of 5% over the next few quarters, potentially recording deflation in the immediate future driven by changes to administratively determined prices and easing of supply conditions,” the CBSL said in the statement.

CBSL cut rates by 25 basis points in July as part of an easing cycle that has seen rates drop by a total 7.25 percentage points since June 2023, partially reversing the 10.50 percentage points worth hikes done to deal with the financial crisis.

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

Dissanayake dissolved parliament on Tuesday and is hoping to strengthen his hand in the 225-member house when a general election is held on Nov. 14. His coalition held just three seats in the parliament elected in August 2020.

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

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