Sri Lanka cuts lending rates

Sri Lanka's central bank Friday cut benchmark lending rates by 50 basis points, saying the move was designed to encourage growth amid sluggish economic activity this year. The Monetary Board of the Central Bank of Sri Lanka reduced its key lending rate from 9.5 percent to 9.0 percent and reduced deposit rates from 7.5 to 7.0 percent in the second easing in six months. "The Board has been somewhat concerned by the slower than expected pick-up in economic activity in the first few months of 2013 and has been of the view that there is now a need to stimulate the domestic economy...," the bank said. The rate cut came despite an IMF warning of rising inflation and to hold policy rates. "The Board has also observed that the economy has now developed greater space for policy manoeuvrability, and the capacity to return to a high growth path without fuelling inflationary pressure," the statement said. The International Monetary Fund chief in Colombo, Koshy Mathai, said last week that he expected inflation to climb by 1-1.5 percentage points in the short term from the 6.4 percent year-on-year inflation recorded at the end of April. The central bank cut lending rates by 25 basis points in December and has since signalled it is ready to make further cuts this year. In February Colombo dropped plans to seek a fresh $1.0-billion loan from the IMF following disagreements over how the money should be spent. Sri Lanka has completed drawing down a $2.6 billion bailout secured in 2009 when foreign reserves dipped to $1.0 billion. Economic growth slowed to 6.4 percent in 2012 from 8.2 percent the previous year.