By Uditha Jayasinghe and Swati Bhat
COLOMBO (Reuters) -Sri Lanka kept its key interest rates unchanged in a surprise move on Thursday as it chose to wait for the impact of its rate cuts over the previous two months filter through the crisis-hit economy.
It also announced administrative measures to bring down lending rates in certain categories that it said remained high.
The Central Bank of Sri Lanka (CBSL) kept its standing deposit rate and standing lending rate unchanged at 11% and 12% respectively. CBSL had cut rates by a total 450 basis points over June and July.
The monetary board took note of “the need to allow space for further adjustment of market interest rates swiftly,” the bank said in a statement.
“The board observed that market interest rates of certain lending products remain excessive and are not in line with the current monetary policy stance,” it added.
The bank said it would take targeted administrative measures to reduce specific lending rates it considered excessive and direct banks to reduce overall rupee lending interest rates by an appropriate margin in the period ahead.
CBSL had previously raised rates by a record 1050 basis points till March to contain inflation and cool the teetering economy.
Sri Lanka’s economy crumpled last year after its foreign exchange reserves dropped to record lows, leaving the country struggling to pay for essential imports, decimated the currency, and sent inflation soaring.
Sri Lanka’s key inflation index peaked at 70% year-on-year in September but came down to 6.3% in July after the island nation locked down a $2.9 billion bailout from the International Monetary Fund (IMF).
Thilina Panduwawala, head of research at Frontier Research, said he expected the central bank to resume cutting rates.
“They see space with regards inflation at the moment,” he said. “We expect the lending rates will be 10% by end-2023, so loosening by 200 basis points.”
(Reporting by Uditha Jayasinghe and Swati Bhat; editing by Sudipto Ganguly and Raju Gopalakrishnan)
