By Uditha Jayasinghe
COLOMBO (Reuters) -Sri Lanka’s central bank held its benchmark interest rate steady at 7.75% on Wednesday, pausing after May’s surprise cut, to monitor the impact of U.S. tariffs and the effects of earlier monetary easing on the economy.
The decision was widely expected, with most analysts in a Reuters poll predicting a hold amid stable inflation and a steady economic recovery.
“The Board is of the view that the current monetary policy stance will help steer inflation towards the target of 5% in the period ahead while supporting growth,” the Central Bank of Sri Lanka said in a statement.
Supported by a $2.9 billion programme from the International Monetary Fund, the island nation is gradually recovering from its worst financial crisis in decades, triggered by a record dollar shortage three years ago.
The Central Bank of Sri Lanka (CBSL) had trimmed its benchmark interest rate by 25 basis points in May in a surprise move to support growth. The economy expanded 5% in 2024, and the central bank expects growth to remain between 4% and 5% this year.
“If the recovery in headline and core inflation remains gradual, there can still be space for another 25 bps cut in the rest of the year,” said Thilina Panduwawala, head of research at Frontier Research.
Ten of 13 analysts and economists polled by Reuters had expected the CBSL to hold rates steady at its July meeting, citing benign inflation, stable growth, and uncertainty over U.S. trade policy.
The United States initially imposed 44% tariffs on Sri Lankan goods but lowered them to 30% earlier this month.
Colombo resumed talks with Washington last week in a bid to reduce the duties further before they take effect on August 1.
Apparel, Sri Lanka’s second-largest foreign exchange earner, is particularly exposed — the sector exports 40% of its output to the U.S. and brought in $4.8 billion last year. It employs around 300,000 people, most of them women.
(Reporting by Uditha Jayasinghe; Editing by Swati Bhat and Jacqueline Wong)
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