Sri Lanka Default Risk Seen High by Citi as Crisis Delays Loan
A demonstration against the economic crisis in Colombo on April 9.
Photographer: Ishara S. Kodikara/AFP/Getty Images
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Sri Lanka’s unprecedented interest-rate hike has helped restore the central bank’s credibility, although it’s not enough to remove the risk of a debt default as a political crisis delays an International Monetary Fund bailout, according to Citigroup Global Markets.
The Central Bank of Sri Lanka raised the key rate by 700 basis-points on Friday, narrowing the negative gap in real interest rates -- nominal rates adjusted for inflation -- to 420 basis points from 1,120 basis points previously.