Sri Lanka raises rates as growth slows, inflation spikes

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COLOMBO: Sri Lanka raised its key interest rate by 25 basis points Friday as inflation spiked and foreign reserves fell, compounding problems caused by slowing economic growth.

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The Central Bank of Sri Lanka said it raised the benchmark lending rate from 8.5 percent to 8.75 percent as year-on-year inflation increased to 8.2 percent last month, sharply up from 6.5 percent in January.

Sri Lanka enjoyed blistering economic growth rates averaging more than 8.0 percent for two years after a prolonged civil war ended in 2009.

But growth has been slowing ever since, hitting 4.4 percent last year, according to central bank data.

Foreign reserves fell to $5.6 billion at the end of February compared to $6.0 billion in December 2016.

“The Monetary Board was of the view that further tightening of monetary policy is necessary as a precautionary measure, in order to contain the build up of adverse inflation expectations,” it said.

A drought gripping parts of the island and unfavourable external conditions were hurting the economy, the bank said.

Last June, the government received a $1.5 billion bailout from the IMF after facing a balance of payments crisis.

 

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