COLOMBO, Jan. 20 (Xinhua) -- The Central Bank of Sri Lanka (CBSL) on Thursday announced that it would be raising interest rates following the first Monetary Policy Review of the year in order to strengthen macroeconomic stability.
The CBSL said in a statement that the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) would be raised by 50 basis points each to 5.5 percent and 6.5 percent respectively.
In light of a foreign exchange shortage and an expanding trade deficit, the CBSL said that it would distribute financing of essential import bills for fuel purchases to licensed banks in proportion to their foreign exchange inflows.
The CBSL has also introduced a mandate for tourism establishments to only accept payment in foreign exchange from persons who are non-residents of Sri Lanka.
The country's external sector has remained resilient with monthly exports crossing 1 billion U.S. dollars since June 2021, helping offset increasing imports costs due to soaring global commodity prices and the availability of low cost credit, the CBSL said.
The impact of COVID-19 on tourism, which contributes around 3.5 to 4 billion U.S. dollars in revenue to Sri Lanka annually, is cited as the main cause for the country's foreign exchange shortage.
Meanwhile, domestic inflation, which has reached double digits in recent months, has been caused primarily by supply side factors such as supply chain disruptions, the CBSL said.
The CBSL said that Sri Lanka's economic growth may have reached 4 percent in 2021 despite pressures from the COVID-19 pandemic according to preliminary data.