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S. Lanka bank in first rate cut since end of war

[AFP, Tuesday, 16 June 2009 07:18 No Comment]

Sri Lanka’s central bank on Tuesday cut its key interest rates, saying that the end of the island’s decades-old Tamil separatist war had fuelled prospects for growth.

The bank lowered its benchmark repurchase rate by 50 basis points to 8.5 percent, the first cut since the military wiped out the leadership of Tamil Tigers in mid-May and declared the end of the separatist conflict.

"The positive developments that took place in the recent period has uplifted the growth prospects for Sri Lanka, as immediately reflected in the healthy developments in market sentiments," the bank said.

Sri Lanka’s tiny stock market has gained more than 12 percent since the government announced the Tiger leadership was wiped out on May 18, ending a bloody struggle dating back to 1972.

"While the country’s international reserves have improved as a result of recent purchases of foreign exchange by the central bank, strengthening international reserves, in turn, would help stabilise domestic financial markets," the bank said.

Sri Lanka has also said it will not "beg" for foreign aid even as a 1.9 billion dollar bailout from the IMF has been delayed due to pressure from the West which is critical of Colombo’s handling of the war against Tigers.

With the military success, the central bank plans to revise upwards the island’s economic forecast for 2009 to four to five percent, from 2.5 percent to 3.0 percent announced earlier this year.

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