The Central Bank of Sri Lanka (CBSL) cut its key lending rate by 25 basis points on Wednesday.
The central bank unexpectedly cut the key rate as policy makers sought to revitalise an economy growing at its weakest pace in 16 years and facing heightened political uncertainty.
The move, some analysts say, keeps the door open for further easing, as investors worry about political instability after the ruling coalition lost a local government election in February, reports Reuters.
Since the February election setback for the unity government, the CBSL governor has warned of risk to growth from political instability.
Citing favourable inflation and lacklustre growth, the CBSL cut the standing lending facility rate (SLFR) by 25 basis points to 8.50 per cent and maintained the standing deposit facility rate (SDFR) at 7.25 per cent.
The country’s economy grew 3.1 per cent in 2017, the slowest since a recession in 2001 and well below the 4.5 per cent pace of 2016.
Credit growth of the island nation slipped to 14.6 per cent year-on-year in February, well off a near four-year high of 28.5 per cent hit in July 2016.
The previous rate hikes along with tight fiscal measures to meet conditions by the International Monetary Fund (IMF) for a $1.5 billion loan have sapped economic growth.