Sri Lanka cuts rates as economy struggles after Easter attacks

Sri Lanka's central bank cut its main lending rate Friday for the second time in three months hoping to lift the economy as its struggles in the wake of the devastating Easter attacks that hit the key tourism sector.

The Central Bank of Sri Lanka (CBSL) said the rate at which it lent to commercial banks was reduced by 50 basis points to 8.0 per cent.

It added that the 50-basis-point cut in May had not translated into cheaper credit for consumers and expected the latest move to reflect in market lending rates.

"It is essential that market lending rates are lowered by bank and non-bank financial institutions in response to their reduced cost of funds, thereby boosting credit flows to productive sectors, and in turn help the revival of the economy," the bank said in its monthly economic review.

Sri Lanka's economic growth slowed to 3.2 per cent last year from 3.4 per cent in 2018, but had been expected to pick up in 2019 until the devastating attacks by a homegrown jihadist group that killed hundreds and hammered tourism and consumer spending.

"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 bank said.

Finance Minister Mangala Samaraweera expected revenues from tourism -- one of the country's biggest income earners -- to plunge USD 1.5 billion this year because of cancellations by foreign tourists after the bombings, but the industry expects a faster recovery.

The government allowed a state of emergency to lapse on Thursday as authorities announced they had arrested or killed those directly responsible for the attacks.

The International Monetary Fund released a delayed loan installment to Sri Lanka following the bombings, helping government efforts to stabilise the economy.

The global lender released USD 164 million under a three-year USD 1.5 billion bailout that was suspended in October during a power struggle between the president and the prime minister.