Sri Lanka’s central bank raises key rates to curb inflation

Jul 6, 2022, 3:38 PM | Updated: Jul 7, 2022, 5:30 pm
FILE- A motorist pushes his motorcycle along with a cyclist amid fuel shortage in Colombo, Sri Lank...

FILE- A motorist pushes his motorcycle along with a cyclist amid fuel shortage in Colombo, Sri Lanka, July 5, 2022. Sri Lanka’s central bank has raised its key interest rates to 14.50% and 15.50% to try to contain inflation that has added to the country’s economic woes. (AP Photo/Eranga Jayawardena, File)

(AP Photo/Eranga Jayawardena, File)

COLOMBO, Sri Lanka (AP) — Sri Lanka’s Central Bank has raised its key interest rates to their highest levels in more than 20 years to try to contain inflation that has added to the country’s economic woes.

Recent price hikes have been a severe blow, especially for the South Asian country’s poor and vulnerable groups as they endure their country’s worst economic crisis in memory, struggling with acute shortages of essentials such as food, fuel, cooking gas and medicines.

Two weeks ago, Prime Minister Ranil Wickremesinghe told lawmakers the economy had “collapsed.” On Wednesday, he announced he had called Russian leader Vladimir Putin to request credit support to help the country import fuel.

The central bank said it had raised its Standing Deposit Facility Rate by 100 basis points to 14.50%. The move is expected to help draw more funds into the banking sector. It also raised the Standing Lending Facility Rate that it charges commercial banks by 100 basis points, to 15.50%.

Those rates were last that high in 2001.

The bank said it expects to tighten its monetary policy further to fully curb inflation, which rose to nearly 55% in June, while food inflation topped 80%.

The bank raised its policy rates by 700 basis points each in April, roughly doubling them and surprising economists as it struggled to drive inflation lower. Earlier, Fitch Solutions Country Risk & Industry Research forecast that it would push the Standing Deposit Facility Rate to 16.50% and the Standing Lending Facility Rate to 17.50% by the year’s end.

“Our priority is to bring down inflation to at least a reasonable level as soon as possible. The sooner the better,” said the central bank governor, Nandalal Weerasinghe.

Many central banks, most notably the U.S. Federal Reserve, have been raising interest rates to prevent inflation from spiraling out of control. But Sri Lanka faces troubles on a different scale.

“What the central bank has done is a measure in the right direction, but it’s too short given the high inflation rate of 55 per cent right now which will accelerate to more than 80 to 100 per cent in the next two to three months,” said W.A. Wijewardena, an economist and former deputy governor of Sri Lanka’s Central Bank.

Prices of most essentials have tripled in recent months and the most people are struggling to pay for their basic needs. About 70% of Sri Lankan households surveyed by UNICEF in May reported cutting back on food consumption. Many families rely on government rice handouts and charitable donations.

The central bank said Sri Lanka’s economy is estimated to have contracted 1.6% from a year earlier in the first quarter of the year. Shortages of fuel and electricity have further crimped economic activity in April-June.

Even though the economy already has slowed, the interest rate hikes would help temper expectations for further price increases, helping bring inflation down to a target of 6%-7%, the central bank said in a statement.

Due to the acute fuel and power shortages, Sri Lanka has kept schools shut for weeks, while the government has asked state employees other than those in essential services to work from home.

This week, daily three-hour power cuts went into effect.

Strapped by dwindling foreign reserves, Sri Lanka has suspended repayment on foreign debts worth about $7 billion that were due this year.

The country is negotiating with the International Monetary Fund on a bailout package, but Wickremesinghe, the prime minister, said this week that negotiations were proving complex and difficult because Sri Lanka is effectively bankrupt.

The economic meltdown has triggered a political crisis, with widespread anti-government protests erupting across the country. Protesters have blocked main roads to demand gas and fuel, and television stations showed people in some areas fighting over limited stocks.

In the capital, Colombo, protesters have been occupying the entrance to the president’s office for more than two months to demand President Gotabaya Rajapaksa’s resignation. They accuse him and his powerful family, which includes several siblings who until recently held top government positions, of precipitating the crisis through corruption and misrule.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

President of Malawi Lazarus Chakwera addresses the 77th session of the United Nations General Assem...
Associated Press

‘Multilateral’? Global South’s leaders question solidarity

DAKAR, Senegal (AP) — The United Nations was established on one simple notion above all others: Working together is better than going it alone. But while the term “multilateralism” might be trending at this year’s U.N. General Assembly, some leaders are calling out the heads of richer nations. Whether it’s the global response to the […]
1 day ago
Associated Press

Boat capsize in Bangladesh kills at least 24 Hindu pilgrims

DHAKA, Bangladesh (AP) — A boat carrying about 100 Hindu pilgrims capsized Sunday in a river in northern Bangladesh, leaving at least 24 people dead, police said. The overcrowded boat overturned in the afternoon while returning from a Hindu temple on the other side of the River Karatoa at Boda area in Panchagarh district, said […]
1 day ago
FILE—Vanessa Caudel, a nurse, sits at her work station in the Great Circle treatment center  on F...
Associated Press

Critics: Oregon’s move to decriminalize hard drugs a failure

SALEM, Ore. (AP) — Two years after Oregon residents voted to decriminalize hard drugs and dedicate hundreds of millions of dollars to treatment, few people have requested the services and the state has been slow to channel the funds. When voters passed the state’s pioneering Drug Addiction Treatment and Recovery Act in 2020, the emphasis […]
1 day ago
Evidence tape is seen with a Sexual Assault Evidence Collection Kit in an examination room, Wednesd...
Associated Press

Texas vow to ‘eliminate all rapists’ rings hollow at clinics

AUSTIN, Texas (AP) — When Texas’ new abortion law made no exceptions in cases of rape, Republican Gov. Greg Abbott defended it with an assurance: Texas would get to work eliminating rapes. One year later, Lindsey LeBlanc is busy as ever helping rape victims in a college town outside Houston. “The numbers have stayed consistently […]
1 day ago
FILE - Vice President Kamala Harris waits outside the Vice President's Sept. 16, 2022, in Washingto...
Associated Press

Ceremony and controversy await Harris during visit to Asia

WASHINGTON (AP) — Attending funerals on behalf of the United States is normally a straightforward assignment for a vice president, but Kamala Harris will confront controversy at nearly every turn as she visits Asia for the memorial honoring former Japanese Prime Minister Shinzo Abe. American allies are seeking clarity after mixed messages over whether President […]
1 day ago
Associated Press

Fire breaks out at world’s biggest produce market in Paris

PARIS (AP) — A billowing column of dark smoke towered over Paris on Sunday from a warehouse blaze at a massive produce market that supplies the French capital and surrounding region with much of its fresh food and bills itself as the largest of its kind in the world. Firefighters urged people to stay away […]
1 day ago

Sponsored Articles

Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
Sri Lanka’s central bank raises key rates to curb inflation