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COLOMBO: Sri Lanka’s central bank doubled its key interest rates on Friday, raising each by an unprecedented 700 basis points to tame inflation that has soared due to crippling shortages of basic goods driven by a devastating economic crisis.

The heavily indebted country has little money left to pay for imports, meaning fuel, power, food and, increasingly, medicine are in short supply.

Street protests have been held nearly non-stop for more than a month, despite a five-day state of emergency and a two-day curfew.

The Central Bank of Sri Lanka’s (CBSL) monetary board raised its standing lending facility to 14.50% and its standing deposit facility to 13.50%.

It cited “inflationary pressures that could further intensify... driven by the build-up of aggregate demand, domestic supply disruptions, exchange rate depreciation and the elevated prices of commodities globally”. Inflation hit 18.7% in March.

An analyst had expected hikes of up to 400 basis points.

Thilina Panduwawala, head of economic research at Frontier Research, said the hike showed that the CBSL’s new governor, P. Nandalal Weerasinghe, was serious about addressing the crisis.

“With the monetary policy tightening now finally clear, the stage is set to take the next vital steps with regards to IMF and debt restructuring and clearly communicate this to the international stage,” Panduwawala said.

Finance Minister Ali Sabry said earlier that the country must urgently restructure its debt and seek external financial help, while the main opposition threatened a no-confidence motion in the government and business leaders warned exports could plummet. “We cannot step away from repaying debt because the consequences are terrifying. There is no alternative, we must restructure our debt,” Sabry told parliament.

J.P. Morgan analysts estimate that Sri Lanka’s gross debt servicing costs will amount to $7 billion this year, with a $1 billion repayment due in July.

“We have to go for a debt moratorium,” said Sabry, who offered to quit a day after he was appointed on Monday but later confirmed that he was still finance minister.

“We have to suspend debt repayment for some time and get bilateral and multilateral support to manage our balance of payments.”

NO-CONFIDENCE MOTION?

President Gotabaya Rajapaksa is running his administration with only a handful of ministers after his entire cabinet resigned this week, while the opposition and some coalition partners rejected calls for a unity government to deal with the country’s worst crisis in decades.

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