SRI LANKA’S central bank cut its benchmark interest rate last Wednesday (27), after the government agreed to a debt restructure deal with international bond holders.
The Central Bank of Sri Lanka said it was moving to a single policy rate set at eight per cent, an “effective reduction” of around 50 basis points.
The move came a day after the government vowed to honour a deal secured by its predecessor to restructure $12.55 billion (£9.8bn) in international sovereign bonds, a key condition of an International Monetary Fund bailout.
The fund welcomed Sri Lanka completing its external debt restructure and urged international bond holders and other creditors to accept the terms offered by Colombo.
Sri Lanka secured a $2.9-bn (£2.2bn) bailout from the IMF in 2023 after doubling taxes, withdrawing energy subsidies and raising prices of essentials to shore up state revenue.
A majority of private creditors of the south Asian nation agreed two months ago to a 27 per cent haircut on their loans, but it needed the approval of the new administration.
The leftist government of president Anura Kumara Dissanayake, who came to power days after the bond deal was announced in September, said it will implement the restructuring immediately.
His National People’s Power party previously called the restructuring unfavourable to the nation and vowed to renegotiate after coming to power. However, after winning, he made a U-turn, saying the recovery was too fragile to make any changes.
