Sri Lanka's central bank surprised the market on Tuesday by cutting policy rates for the first time in five months, slashing borrowing costs to spur better-quality credit growth and private sector investment. A Reuters poll had forecast rates would be held steady but the central bank cut the repurchase rate by 25 basis points to 7.00 percent and the reverse repurchase rate by 50 basis points to 8.50 percent, the lowest levels since November 2004.
The island-nation's economy was estimated to have expanded by 8 percent last year, a 32-year-high, from an eight-year low of 3.5 percent in 2009. The central bank forecast record 8.5 percent growth in 2011, with inflation between 4 percent and 6 percent.
However, the central bank has said the rise in annual inflation, which hit a 21-month high in November, was mainly due to high food and commodity prices amid steady core inflation.
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