The Central Bank of Sri Lanka raised its benchmark standing lending facility rate by 100 basis points to 15.5%, taking total interest rate hikes this year to 950 basis points.
The decision comes amid a currency slump, declining foreign currency reserves and consumer prices that rose to a record 54.6% in June, with food prices rising by 80.1%.
Sri Lanka’s foreign exchange reserves fell to $1.86 billion at end-June from $1.89 billion in May, including the $1.5 billion conditional swap with China.
Late last month, the country suspended sales of fuel for non-essential vehicles as it faces its worst economic crisis in decades.
The country’s Central Bank expects inflation to touch 70% in the near term and stay higher for another year but a fall in global crude and commodity prices may help bring it down sooner, he added.
The country defaulted on its $51 billion foreign debt in April, and needs $4 billion in emergency funds this year. However, a deal with the International Monetary Fund (IMF) for rapid aid remains still in the works.
Sri Lanka is pushing for a possible $3 billion extended financing programme from the IMF, which would help it unlock other bridge financing options to pay for essential imports.