“I am here to implement an independent policy. There is no political interference in my regime, I have made that very clear to the authorities,” new governor Nandalal Weerasinghe said in a later press briefing. “I have the full support and blessing of the government, the opposition parties and, above all, the general public.”
Weerasinghe’s emphasis on credible policy comes days before expected talks with the International Monetary Fund to guide Sri Lanka through its currency and debt struggles, including $8.6 billion in payments due this year. On Wednesday, the South Asian nation announced a three-member advisory group that will help manage the debt crisis and engage with outside lenders.
“It’s a big increase and we expected it to be split into two political meetings. However, it’s the right move under the current circumstances,” said Lakshini Fernando, an economist at Asia Securities Ltd. in Columbus. “This bold move brings us one step closer to negotiations with the IMF as it shows the country’s determination to act.”
The central bank’s decision – which takes cumulative hikes to 900 basis points from the pandemic-era low – is aimed at curbing demand pressures in the economy amid falling foreign exchange reserves. The move will also provide support for its currency which has fallen over 57% since its devaluation.
Inflationary pressures could intensify in the period ahead and “a substantial policy response is imperative,” the central bank said in a statement. Consumer prices rose about 19% last month, the highest rate in Asia.
The central bank also raised the permanent deposit facility rate on Friday to 13.5% from 6.5%.
Stock markets are closed next week in Colombo for public holidays. They had previously traded shortened sessions due to blackouts of up to 13 hours a day due to fuel shortages.
“The situation could get even worse in the next few weeks or months, but a turnaround will happen at some point,” Weerasinghe said.