The International Monetary Fund has commended the decision by the Central Bank of Sri Lanka to raise policy rates and said it “shows its commitment to reduce inflation more quickly and firmly towards the single-digit target.”
Senior Mission Chief for Sri Lanka Peter Breuer and Mission Chief for Sri Lanka Masahiro Nozaki in a joint statement said the CBSL’s decision to raise the policy rate is appropriate and in line with its objectives set under the inflation targeting framework.
The CBSL yesterday raised policy interest rates by 100 basis points.
The IMF statement said “It reflects CBSL’s commitment to the inflation target and is an important part of the disinflation strategy in the EFF program, which is fully committed by the Sri Lankan authorities and supported by the IMF”.
“Sri Lanka’s inflation is declining but remains at a very high level, which has been disproportionally hurting the poor,” the IMF said.
“Upside inflation risks could reverse the trend and lead to persistently high inflation which is extremely costly to the economy.
“Therefore, CBSL’s decision to raise the policy rate shows its commitment to reduce inflation more quickly and firmly towards the single-digit target.
“Durable disinflation would help boost market confidence, reduce excessive risk premia and ease the financing conditions for the corporates, especially the small and medium enterprises, which supports recovery.”