Sri Lanka Reduces Interest Rates for 1st Time Since Bankruptcy as Economy Shows Signs of Rebounding

The Central Bank of Sri Lanka reduced its interest rates Thursday for the first time since the island nation declared bankruptcy, after stern fiscal controls, improved foreign currency income and help from an International Monetary Fund program resulted in inflation slowing faster than expected, the Associated Press reported. The Central Bank said in a statement that the lending and deposit interest rates were reduced by 250 basis points to 14% and 13%. The hope is that lowering the rates would "provide an impetus for the economy to rebound from the historic contraction activity witnessed in 2022, while easing pressures in the financial markets,” the statement said. According to the Central Bank, the headline inflation stood at 35.3% in April, was reduced to 25.2% in May and is expected to reach single-digit territory by the the third quarter. Sri Lanka declared bankruptcy in April 2022 and said it is suspending repayment of its foreign debt. It reached an agreement in March with the IMF for a nearly $3 billion bailout program over four years and started negotiations with its creditors on debt restructuring. Read more.