By Uditha Jayasinghe
COLOMBO (Reuters) -Sri Lanka’s central bank set a new single policy rate of 8% on Wednesday, aiming to catalyse the island nation’s nascent recovery from a deep financial crisis.
Sri Lanka’s central bank (CBSL) said late on Tuesday that it will implement a single policy interest rate mechanism by introducing an overnight policy rate instead of the existing rate corridor.
“With this change, the effective reduction in the policy interest rate would be around 50 basis points from the current level of the Average Weighted Call Money Rate (AWCMR), which continues to serve as the operating target of the Flexible Inflation Targeting ( FIT) framework,” the bank said.
Previously, the CBSL set two key rates, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), which economists had expected will be reduced by 25 basis points each to 8% and 9%, respectively.
The SDFR and SLFR will no longer be considered policy interest rates, the bank said.
Sri Lanka’s economic rebound began after the country secured a $2.9 billion programme from the International Monetary Fund (IMF) in March 2023, eventually securing a election-delayed third review last Saturday.
Sri Lanka launched a long-awaited bond swap on Tuesday, a major step to completing its $12.55 billion debt restructuring and enabling its fragile economic recovery to continue.
Bondholders have until Dec. 12 to vote in support of the proposal, which would see them swap existing bonds for a set of new issues.
