Sri Lanka raises rates as rupee falls to record low

Colombo, :Sri Lanka’s central bank raised interest rates for the first time in nearly three years Thursday as the rupee hit a record low amid a crippling foreign exchange shortage.
With the country of 21 million already facing shortages of imported cooking gas and sugar because of the lack of dollars, the Central Bank of Sri Lanka increased its deposit and lending rates by 50 basis points to 5.0 percent and 6.0 percent respectively.
The bank said the move was to counter “imbalances” as the rupee falls against the dollar “and to preempt the buildup of any excessive inflationary pressures”.
The rupee fell to 216.55 to the dollar — its lowest ever level — despite the central bank urging currency traders not to allow the local currency to fall below 202.
The government had reduced rates after the coronavirus pandemic hit last year in hope of bolstering the economy.
But Sri Lanka still recorded its worst recession in decades, with the economy shrinking 3.6 percent as tourist arrivals collapsed and with it foreign currency receipts.
Sri Lanka’s foreign reserves fell to $2.8 billion at the end of July, from $7.5 billion in November 2019 when the government took office.