Sri Lanka raises key interest rates by 700 basis points to 14.5%

Sri Lanka’s central bank doubled its key interest rates on Friday, raising each by an unprecedented 700 basis points to tame inflation that has soared due to crippling shortages of basic goods driven by a devastating economic crisis.

The heavily indebted country has little money left to pay for imports, meaning fuel, power, food and, increasingly, medicines are in short supply.

Street protests have been held nearly non-stop for more than a month, despite a five-day state of emergency and a two-day curfew. Sri Lanka’s main opposition party — Samagi Jana Balawegaya — on Friday asked the government to take effective action to resolve an economic crisis or face a no-confidence motion, as business leaders from garments, tea and other industries warned exports could fall 20-30 per cent this year.

The Central Bank of Sri Lanka’s (CBSL) monetary board raised its standing lending facility to 14.50 per cent and its standing deposit facility to 13.50 per cent.

The build-up of aggregate demand, domestic supply disruptions, the plunge of the local currency and high prices of commodities globally could keep up the pressure on inflation, CBSL said in its monetary policy decision statement. “The rate hike will give a strong signal to investors and markets that we are coming out of this as soon as possible,” governor P Nandalal Weerasinghe said.

Earlier in the day, Finance Minister Ali Sabry said the country must urgently restructure its debt and seek external financial help.  “There is no alternative, we must restructure our debt,” Sabry told parliament.