Sri Lanka has increased interest rates to the highest level in over two decades, as the country battles to fight soaring inflation and the worst economic crisis it has faced since declaring independence.
The Sri Lankan central bank raised its standing lending facility rate by 100 basis points to 15.50% while the standing deposit facility rate was also raised by 100 basis points to 14.50%, the highest level since August 2001.
Despite the risk of hampering economic growth, the rate hikes are deemed necessary to rein in inflation, which reached a record 54.6% in June compared with 12 months previously.
“We will work to manage inflation as much as possible but other measures such as cash transfers will also be needed to give relief to the poor,” Sri Lankan central bank Governor P. Nandalal Weerasinghe told reporters, warning that inflation could rise as high as 70%.
The South Asian nation is in turmoil with foreign exchange reserves almost running dry and leaving the government unable to pay for essential imports. Shortages of food, medicine and fuel have become commonplace across the country.
Sri Lanka is in negotiations with the IMF over a possible $3 billion financial package to help see it through the crisis, which has prompted serious political unrest and has the potential to cause widespread suffering among the country’s population.
The central bank said in a statement that talks were progressing well, while negotiations have commenced to secure bridge financing in order to make up for the lack of foreign exchange reserves.