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World

Sri Lanka cuts rates as economy struggles after Easter attacks

COLOMBO: Sri Lanka's central bank cut its main lending rate Friday for the second time in three months hoping to lift th

August 23, 2019

COLOMBO: Sri Lanka's central bank cut its main lending rate Friday for the second time in three months hoping to lift the economy as its struggles in the wake of the devastating Easter attacks that hit the key tourism sector.

The Central Bank of Sri Lanka (CBSL) said the rate at which it lent to commercial banks was reduced by 50 basis points to 8.0 percent.

It added that the 50-basis-point cut in May had not translated into cheaper credit for consumers and expected the latest move to reflect in market lending rates.

"It is essential that market lending rates are lowered by bank and non-bank financial institutions in response to their reduced cost of funds, thereby boosting credit flows to productive sectors, and in turn help the revival of the economy," the bank said in its monthly economic review.

Sri Lanka's economic growth slowed to 3.2 percent last year from 3.4 percent in 2018, but had been expected to pick up in 2019 until the devastating attacks by a homegrown jihadist group that killed hundreds and hammered tourism and consumer spending.

"Although economic growth is expected to recover gradually towards its potential in the medium term, domestic and global headwinds are likely to delay this recovery," the bank said.

Finance Minister Mangala Samaraweera expected revenues from tourism -- one of the country's biggest income earners -- to plunge $1.5 billion this year because of cancellations by foreign tourists after the bombings, but the industry expects a faster recovery.

The government allowed a state of emergency to lapse on Thursday as authorities announced they had arrested or killed those directly responsible for the attacks.

The International Monetary Fund released a delayed loan installment to Sri Lanka following the bombings, helping government efforts to stabilize the economy.

Copyright AFP (Agence France-Press), 2019