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

AP – Sri Lanka’s Central Bank has raised its key interest rates to 14.50 per cent and 15.50 per cent 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 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.

The central bank said it raised its Standing Deposit Facility Rate by 100 basis points to 14.50 per cent. 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 per cent.

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

Prices of most essentials have tripled in recent months and most people are struggling to pay for their basic needs.

About 70 per cent 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 per cent from a year earlier in the first quarter of the year. Shortages of fuel and electricity have further crimped economic activity in April-June.

A motorist pushes his motorcycle along with a cyclist amid a fuel shortage in Colombo, Sri Lanka. PHOTO: AP