Sri Lanka central bank holds key rate at 8.75pc as Iran war keeps inflation high

COLOMBO: Sri Lanka’s central bank kept its key policy rate unchanged at 8.75percent on Wednesday ahead of the budget in mid-November, but warned inflation would remain high in the next six months due to the Iran war.

The decision was in line with market expectations after the Central Bank of Sri Lanka had raised its policy rate by a steep 100 basis points in May to steady its currency and protect foreign exchange reserves amid the economic fallout from the US-Israeli war with Iran. Inflation stayed at a three-year high of 8percent in September, according to the latest data.

Higher energy costs from the war have pushed the island nation, which imports all of its oil, to ration fuel and increase prices by about 35percent since March. Sri Lanka’s cabinet this week approved a 40.65 billion rupee (USD121 million) diesel fuel subsidy for the next three months as part of efforts to cushion households from rising energy prices.