Sri Lankan shares rise after rate cut

Sri Lankan shares rose yesterday after the country’s central bank cut key interest rates by 250 basis points on easing inflation, signalling that the South Asian nation was emerging from a devastating financial crisis.

The CSE All Share index climbed 1.4% to 8,678.49 by 1 pm in Thailand.

Consumer staples, industrials and financials stocks were the top gainers yesterday.

“Policy interest rates reduced in view of the faster deceleration of inflation, benign inflation outlook and the easing of BOP (balance of payment) pressures, thereby reinforcing the rebound of the economy,” the CBSL said.

Sri Lanka’s key inflation rate eased to 25.2% in May from 35.3% in April, reducing some stress on the crisishit economy.

The island, struggling to emerge from its worst financial crisis since independence in 1948, secured a $2.9 billion bailout from the International Monetary Fund (IMF) in March.

The central bank’s move to cut rates should aid the equity markets “to some extent,” said Udeeshan Jonas, chief strategist at equity research firm Capital Alliance Limited in Colombo.

“The equity market is waiting for the debt restructuring announcement,” Jonas said.

Sri Lanka should have a debt restructuring framework in place by September to take the IMF programme forward.

Meanwhile, the central bank expects rate cuts to accelerate the normalisation of the interest rate structure, broad base economic activity and ease pressures in financial markets helping steer the economy towards a rebound phase.

On the CSE All Share index, Expolanka Holdings Plc and ICT solutions provider Sri Lanka Telecom PLC were the top gainers, rising 3.8% and 4.5%, respectively.