Crisis-hit Sri Lanka hikes interest rates

Sri Lanka's central bank hiked interest rates Thursday in a bid to tame rampant inflation and discourage consumer spending as the country suffers a foreign currency shortage and teeters on the brink of default.

The island nation of around 22 million has seen shortages of food and fuel as well as electricity rationing, with rating agencies warning it might not be able to meet repayments on its debts.

Inflation hit a record 12.1 per cent last month.

The central bank raised the benchmark deposit and lending rates by 50 basis points each to 5.5 per cent and 6.5 per cent respectively. The hike was the first since August.

It said the higher borrowing costs would encourage savings and discourage consumption, thereby reducing demand for imports at a time when the country's foreign reserves were under stress.