Sri Lanka Holds Interest Rates as Brexit Roils Global Markets

  • Central bank holds standing lending and deposit rates
  • Mahendran says he won’t seek another term until exonerated

Sri Lanka left its benchmark rates unchanged for the fourth straight month as Brexit roiled global markets and central bank Governor Arjuna Mahendran said he wouldn’t seek an extension until he is absolved of corruption allegations.

The Central Bank of Sri Lanka kept the standing lending facility rate at 8 percent and the standing deposit facility rate at 6.5 percent, it said in a statement on Friday. The decision was expected by eight of 10 economists in a Bloomberg survey, while one predicted a 50 basis point increase in both rates and one forecast a 25 bps rise in the benchmarks.
 
Emerging-market currencies tumbled Friday on concern that Britain’s exit from the European Union will spur investors to dump holdings of higher-yielding assets. Sri Lanka’s rupee was up 0.2 percent as of 5:09 p.m. local time, reversing an intraday decline, even as it’s on pace for its biggest weekly fall in nine months.

IMF Loan

The International Monetary Fund, which approved a $1.5 billion loan to Sri Lanka this month, has advised the island nation to keep policy rates tight in case of elevated inflationary pressures, sustained private loan-growth and pressure on the rupee. Moody’s Investors Service on June 20 changed the outlook on Sri Lanka’s rating to negative from stable, citing expectations of further weakening in the nation’s fiscal metrics.

Consumer price-gains accelerated to 4.8 percent in May, the fastest pace in more than two years, even as growth slowed.

Mahendran, a former HSBC Holdings Plc wealth manager, has seen his tenure mired in controversy since taking office in January 2015. He has faced allegations that his son-in-law -- the head of a local brokerage -- benefited from sovereign bond sales, as well as accusations of lavish personal spending on his official expense account. He has denied wrongdoing.

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