© Reuters. FILE PHOTO: People walk past the main entrance of the Sri Lanka’s Central Bank in Colombo, Sri Lanka March 24, 2017. REUTERS/Dinuka Liyanawatte
By Uditha Jayasinghe and Devjyot Ghoshal
COLOMBO (Reuters) – Sri Lanka’s new central bank governor will hold a monetary policy meeting on Friday, a day after he takes office, a source with direct knowledge of the matter told Reuters, as the government struggles with an economic crisis.
With inflation racing to the highest in a decade, hefty interest rate hikes may be looming, adding to pressure on the reeling economy and fanning further unrest.
The crisis touched off political chaos this week when the entire cabinet of President Gotabaya Rajapaksa quit, followed by the resignation of the central bank chief, Ajith Nivard Cabraal.
Rajapaksa’s call for a unity government has been rejected by the opposition and even some of his alliance partners, and he is yet to find a new finance minister ahead of scheduled talks this month with the International Monetary Fund (IMF) for loans.
Protests against shortages of food, fuel, power and medicine have gone unabated. The heavily indebted nation of 22 million people has a severe shortage of foreign currency to pay for imports.
Nandalal Weerasinghe, a former senior deputy governor of the Central Bank of Sri Lanka who has worked with the IMF, will replace Cabraal on Thursday.
“The monetary board meeting will be held on Friday afternoon,” said the source, who declined to be identified before the announcement.
“The policy announcement will very likely be made the next morning after which the new governor is expected to hold a press conference to lay out his priorities and plans.”
The central bank, which was originally due to hold its policy meeting last Monday, did not immediately respond to a request for comment.
An analyst said the central bank was expected to hike key interest rates by 300-400 basis points (bps) – following a 100 bps increase in early March – to tame inflation that hit 18.7% in March.
“We also expect the newly appointed governor to outline potential measures to be included in the IMF reform plan, views on potential debt restructuring, and currency management,” said Lakshini Fernando of Asia Securities, adding she also expected Weerasinghe to address the need for “higher stability and transparency” at the bank.
The rupee currency’s 40% depreciation against the U.S. dollar in one month, including a central bank managed devaluation, has compounded problems.
Rajapaksa’s team, however, is still hunting for a finance minister after Ali Sabry quit on Tuesday, a day after his appointment.
A source close to the administration said that despite appeals to a range of officials and top private sector professionals, the president and his close aides have failed to find a replacement.
A spokesperson for the president did not immediately respond to a request for comment.