Sunday, October 2, 2022
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Sri Lanka’s Shattered Economy Awaits New Finance Head, Rate Hike

Bloomberg – Authorities in Sri Lanka this week are expected to name a new finance minister and raise interest rates as they struggle to stabilize an economy spiraling into chaos by a lack of dollars and surging inflation.

Prime Minister Ranil Wickremesinghe, appointed last week, is expected to soon choose a finance minister, who will help lead talks with the International Monetary Fund over badly needed aid.

Meanwhile, the Central Bank of Sri Lanka is expected to raise its benchmark standing lending rate by 75 basis points on Thursday from 14.5%, the median in a Bloomberg survey shows as of Tuesday, as it tries to battle Asia’s fastest inflation.

The decisions come as the South Asian country barrels toward its first official default, with the 30-day grace period for missed interest payments on dollar bonds ending Wednesday.

Containing, reactivating, and managing: Sri Lankan economy's triple  challenge — Advocata Institute | Sri Lanka | Independent Policy Think Tank

The prime minister on Monday warned that the country was down to its last day of gasoline supplies, as it doesn’t have the dollars to pay for shipments aboard tankers anchored just offshore. He also said it would need to print money to pay government salaries, a move that will certainly worsen inflation already running near 30%.

What Bloomberg Economics Says…

“Facing a cratering currency and the risk of hyperinflation, the Central Bank of Sri Lanka is sure to hike rates further — crushing growth. But we think the worst of the inflation storm will pass fairly quickly. The prospect of consumer price gains cooling into 2023 should allow the central bank to limit its remaining rate increases to 400 basis points.”

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