Sri Lanka cuts rates to boost economy after Easter attacks

Island nation's economic growth slowed to 3.2 per cent last year

Mangala Samaraweera, Finance Minister of Sri Lanka, predicts losses of $1.5bn this year because of cancellations by foreign tourists. AFP 

Sri Lanka's central bank cut its main lending rate on Friday in a bid to revive the island's economy, which was hit by the Easter suicide bombings that killed 258 people.

The Central Bank of Sri Lanka said the rate at which it lent to commercial banks was reduced by 50 basis points to 8.5 per cent to encourage borrowing and mitigate fallout from the bombings which have scared off tourists.

Forty-five foreigners were among the dead from the April 21 suicide attacks against three Christian churches and three luxury hotels that also left nearly 500 people wounded.

"The Easter Sunday attacks have affected confidence and sentiments of economic agents, particularly disrupting tourism and related activities," the bank said.

"Although normalcy is gradually returning to economic activity, a lower than initially projected growth could be anticipated during 2019."

Sri Lanka's economic growth slowed to 3.2 per cent last year from 3.4 per cent in 2017, but had been expected to pick up in 2019 till the devastating attacks carried out by a homegrown terror group.

Finance Minister Mangala Samaraweera said on Thursday that he expected losses of $1.5 billion this year because of cancellations by foreign tourists after the bombings.

He said the government was subsidising loans to hotels.

The central bank said it did not expect an increase in inflation as a result of the latest rate cut.

"Inflation is likely to remain in the desired 4 per cent to 6 per cent range in 2019 and beyond, supported by appropriate policy measures," the bank said.

Two weeks ago, the International Monetary Fund released a delayed loan instalment to Sri Lanka, helping the government efforts.

The global lender released $164 million under a three-year $1.5bn bailout that was suspended in October during a power struggle between the president and the prime minister.

The months-long row was resolved after the Supreme Court ruled that President Maithripala Sirisena had violated the constitution by sacking Prime Minister Ranil Wickremesinghe's government.