Sri Lanka Central Bank Holds Interest Rate Steady Amid Financial Crisis

Sri Lanka's central bank is widely expected to keep interest rates steady on Friday, as it waits for clarity from newly elected President Anura Kumara Dissanayake on his plans to steer the country's recovery from its recent financial crisis. Dissanayake, a Marxist-leaning parliamentarian, was elected on promises to slash taxes, combat corruption, and address the cost of living, garnering support from millions of Sri Lankans.

Following his victory, Dissanayake dissolved the parliament and scheduled a general election for November 14. His coalition currently holds only three seats in the 225-member parliament elected in August 2020, and he aims to secure a stronger position in the upcoming election.

A majority of analysts, 10 out of 14 surveyed by Reuters, believe that the central bank will leave its Standing Deposit Facility Rate (SDFR) at 8.25% and its Standing Lending Facility Rate (SLFR) at 9.25%. Economists like Raynal Wickremaratne, co-head of research at Softlogic Stockbrokers, suggest that the current political climate and the stabilization of inflation and growth make it unlikely that the central bank will adjust rates at this time.

Two years ago, a severe dollar shortfall plunged Sri Lanka into a financial crisis, driving inflation to 70% by September 2022 and forcing the country to default on its foreign debt. However, with support from a $2.9 billion IMF bailout program, inflation has dropped to 0.5% as of August, and the economy is projected to grow by 3% for the first time in three years.