By Uditha Jayasinghe

COLOMBO (Reuters) – Sri Lanka will chill out its forex band from subsequent week, its central financial institution stated on Friday, as a part of efforts to maneuver in direction of a market-determined change charge because it seeks to safe a $2.9 billion bailout from the Worldwide Financial Fund.

The central financial institution additionally raised rates of interest by 100 foundation factors to deal with inflation now operating at 50% because the nation endures its worst monetary disaster since independence from Britain in 1948.

The forex band was widened earlier on Friday to 10 rupees both facet of the spot charge, from 7.50 rupees beforehand, however Central Financial institution Governor P. Nandalal Weerasinghe stated steerage on the forex band can be faraway from subsequent Tuesday.

The central financial institution has been fixing the spot charge each day however didn’t say whether or not it might proceed to take action after Tuesday.

“The central financial institution has seen gradual enchancment within the foreign exchange liquidity within the banking sector. We’re cautious to comprise extreme volatility,” Weerasinghe stated, including that the central financial institution bought $308 million to take care of change charges inside the hall mandated by the financial authority.

“The central financial institution now has the capability to rebuild reserves whereas minimizing foreign exchange market intervention.”

The central financial institution raised rates of interest by 100bps, pushing its standing deposit facility charge and standing lending facility charge, to fifteen.50% and 16.50% respectively.

Sri Lanka is awaiting approval for the IMF bailout bundle after seeing financial development shrink by an estimated 9.2% final yr amid hovering inflation that hit 50% final month.

The central financial institution may also subsequent week droop a compulsory directive given to business banks to transform 15% of all greenback earnings, the central financial institution chief stated.

Sri Lanka’s reserves had been at $2.1 billion on the finish of January.