Sri Lanka’s Central Bank Urges Further Rate Reductions to Revive Economy

Debt-laden Sri Lanka is considering further rate cuts to stimulate its struggling economy, according to the governor of the country’s central bank. The Central Bank of Sri Lanka recently reduced its policy interest rate from 12% to 11%, and Governor Nandalal Weerasinghe has indicated that additional cuts will be necessary to support economic growth. Weerasinghe cited falling inflation rates as a key factor in the decision to lower interest rates. Sri Lanka secured a $3 billion bailout from the International Monetary Fund in 2022, following widespread protests over the government’s handling of the economy. The country’s total debt currently stands at over $83 billion, including $41.5 billion in foreign debt and $42.1 billion in domestic debt. Despite the economic challenges, Weerasinghe expressed optimism about the future, predicting that inflation could decrease to single-digit figures and the economy could rebound from contraction to growth by next year. The governor emphasized the importance of policy support from the central bank in fueling the nation’s economic recovery. Sri Lanka’s GDP decreased by 11.5% year-on-year in the first quarter of 2023 and has remained in negative territory since the first quarter of 2022. The central bank aims to provide support for economic revival in the second half of this year, with the goal of returning the country to positive territory in the coming year.