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Sri Lanka crisis

Sri Lanka raises rates to secure IMF bailout

Cash-strapped South Asian nation awaiting $2.9 billion facility

Central Bank of Sri Lanka has raised key lending rates to stay on track for an International Monetary Fund bailout.    © Reuters

COLOMBO (Reuters) -- Sri Lanka's central bank has raised interest rates in an unexpected move on Friday, to help finalize an International Monetary Fund Extended Fund Facility arrangement, it said in a statement.

The bank raised its standing deposit facility rate and standing lending facility rate by 100 basis points each to 15.50% and 16.50%, respectively.

The country is awaiting approval of a $2.9 billion International Monetary Fund (IMF) bailout package.

The island nations's economy has been squeezed by its worst financial crisis since independence from Britain in 1948, with growth contracting by an estimated 9.2% last year amid soaring inflation that hit 50% in February.

"There have been some differences between the CBSL and IMF staff on the inflation outlook," the Central Bank of Sri Lanka (CBSL) said in its statement.

"Given the necessity of fulfilling all the 'prior actions' in order to move forward with the finalization of the IMF Extended Fund Facility (EFF) arrangement, the Monetary Board and the IMF staff reached consensus to raise the policy interest rates," it added.

Sri Lanka signed a preliminary agreement with the IMF last September for a $2.9 billion program, but has to restructure its debt before disbursements can begin.

Recent tax rises are in line with international comparisons and are needed to help creditors regain confidence, the IMF said on Thursday, backing Sri Lanka's efforts to lock down a program.

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