Sri Lanka hikes rates, urges government on economic crisis

COLOMBO - Sri Lanka's central bank hiked interest rates one percentage point on Friday andThe troubled South Asian island nation is in the grip of a severe foreign exchange crisis that has led to acute shortages of food, fuel, medicines and raw materials for industries - sending inflation soaring to 16.8 per cent in January.and large parts of the country of 21 million people have been hit by lengthy power cuts.

The Central Bank of Sri Lanka hiked the benchmark deposit and lending rates by 100 basis points each to 6.5 per cent and 7.5 per cent respectively. The move follows a January decision to lift borrowing costs by 50 basis points. It also urged the government to increase fuel prices and electricity tariffs immediately as well as raise taxes to shore up government revenue. That came after a similar call by the International Monetary Fund .

The outbreak of the pandemic pushed the South Asian island's tourism sector - a key foreign-exchange earner - off a cliff, and the government in March 2020 imposed a broad import ban to shore up foreign currency.

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