Sri Lanka makes surprise rate cut to boost growth
percent struck in July due to an extended drought that hit the farm sector during the preceding months.
"You don't deal with such inflation through interest rates or credit curtailment. So it made a lot of sense for us to take the decision," Cabraal said. "The government's tightening of the fiscal deficit also has helped towards inflation control."
Sri Lanka last month said it will achieve a fiscal deficit of 6.2 percent of gross domestic product (GDP) this year, a target agreed with the International Monetary Fund under a $2.6 billion loan, lowering the deficit from 6.9 percent in 2011. The government aims to bring the deficit down to a 35-year low of 5.8 percent next year.
The central bank wants to help reverse a slide in the economic growth rate, aiming for a 7.5 percent growth next year. It has forecast gross domestic product will grow 6.8 percent this year, slowing from a record 8.3 percent in 2011.
The bank also announced that a rule restrcting commercial banks credit annual growth to 18 percent, that was brought in last year, would be ditched at the end of this month.
The bank said it expected the private sector credit growth to have decelerated to around 19 percent year-on-year from a near 16-year high of 35 percent in March.
Samatnha Amarasinghe, an economist with Standard Chartered Bank in Colombo, expected further rate cuts, but with inflation still at high levels she expected the central bank to wait at least a few months.
"We may not see cuts
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