ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Economy

Sri Lanka central bank surprises markets with rate cut

Tourism sector and investments suffer from Islamist militant attack in April

The Sri Lankan central bank's move to take 50 basis points off two key lending rates comes ahead of a presidential election later this year.   © Reuters

COLOMBO (Reuters) -- Sri Lanka's central bank cut its key interest rates on Friday, in a surprise move to boost sluggish growth after the country's tourism sector and investments plummeted following the deadly Easter Day bomb attacks by Islamist militants.

It reduced the standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) by 50 basis points to 7.00% and 8.00%, respectively. A Reuters poll had expected the bank to keep both rates steady.

The central bank cut rates by 50 basis points in May to support the economy after the April 21 attacks.

The latest cut comes ahead of a presidential election later this year.

Economic growth had already slowed to a 17-year low of 3.2% in 2018 and the central bank expects it to slow to 3% or less this year, while a Reuters poll has predicted growth will be its lowest in nearly two decades this year.

"Although economic growth is expected to recover gradually towards its potential in the medium term, domestic and global headwinds are likely to delay this recovery," the central bank said in its monetary policy statement.

"Therefore, it is essential that the available policy spaces are utilised to support productive economic activity without disrupting the improvements achieved in relation to macroeconomic stability."

The tourism sector, Sri Lanka's third-largest source of foreign currency, was badly hit by the Easter Sunday bomb attacks by Islamist militants that killed more than 250 people.

"This might make market rates, which are already on the decline, come down faster," said Danushka Samarasinghe, CEO at Softlogic Capital Markets.

"This will boost economic activity ahead of the election. However, the concern is this move will lead to foreign outflow and will weaken the rupee as a result."

Pressure on the rupee has been building since early this month as foreign investors started to pull out their funds in line with outflows from other emerging markets.

The government's finances remain under pressure with a heavy external debt repayment schedule between 2019 and 2022.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends June 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media