Sri Lanka cuts interest rates after finalising debt restructure

Sri Lanka's central bank has cut benchmark interest rates, marking the first reduction since finalising debt restructure plans with its international creditors.

The Central Bank of Sri Lanka said on Wednesday it was trimming both lending and deposit rates by 25 basis points to continue easing monetary policy in a benign inflation environment.

Inflation in June moderated to 1.7 percent compared with a peak of nearly 70 percent in September 2022 at the height of the country's unprecedented foreign exchange crisis.

"The monetary board (of the central bank) underscored the need to signal its desire to continue eased monetary conditions to sustain the revival of economic activity," the bank said in a statement.

Repayment deal

Wednesday's rate cut comes after a 50-basis-point reduction in March.

The government said earlier this month it had finalised a repayment deal with its international sovereign bond holders, the final step in restructuring its external debt after a sovereign default in April 2022.

The bank said the economy had rebounded since the second quarter of last year. The first three months of this year saw 5.4 percent growth, followed by robust expansion in the second quarter, the bank said.

The economy shrank 2.3 percent last year after a record 7.3 percent in 2022, when months of protests forced then-president Gotabaya Rajapaksa to resign.

His successor Ranil Wickremesinghe has doubled taxes, cut generous energy subsidies and raised prices of essentials to shore up state revenues after securing a $2.9 billion bailout from the International Monetary Fund.