Business Sri Lanka World News

Sri Lanka raises rates as rupee falls to record low of 216.55 to the dollar

(AFP)- 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”.

Sri Lanka banned a wide range of imports, including vehicles as well as industrial raw materials and machinery since March last year

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.

The rupee has lost nearly 20 percent of its value against the US dollar in that time, according to data from private banks.

Faced with currency shortages, the government banned a wide range of imports, including vehicles as well as industrial raw materials and machinery since March last year.

With supermarkets rationing staples such as sugar and milk powder, importers say they cannot get dollars at official exchange rates and have to pay black market prices.

Energy minister Udaya Gammanpila appealed to motorists this week to use fuel sparingly so that the country can use its foreign exchange to buy essential medicines and vaccines.

Another top official warned that fuel rationing may be introduced by the end of the year unless consumption was reduced.

Last month, the Moody’s ratings agency placed Sri Lanka under watch for a downgrade on persistent fears that the island could default on its foreign debt.

Sri Lanka’s annual foreign debt servicing is estimated at $4 billion to $5 billion over the next four to five years, Moody’s said.

The country has arranged a $250 million loan from Bangladesh, and similar cash injections from India, China and South Korea.

0 comments on “Sri Lanka raises rates as rupee falls to record low of 216.55 to the dollar

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: