Wake Up Call

Sri Lanka’s central bank unexpectedly raised key short-term interest rates Thursday in a bid to rein in a possible surge in inflation from new government spending next year. Sri Lanka’s central bank unexpectedly raised key short-term interest rates Thursday in a bid to rein in a possible surge in inflation from new government spending next year. The central bank said in a statement that it would raise its overnight repurchase rate by 25 basis points to 8.75 percent and the reverse repurchase rate by the same amount to 10.25 percent.

“A deceleration in monetary expansion and a further containment of inflation and inflation expectations are expected with these measures,” the statement said.

The repurchase rate is the return on cash deposited by commercial banks with the central bank and the reverse repurchase rate is the cost of borrowing from the central bank.

Investors said the move came as a surprise because inflation in the island nation had shown signs of slowing down with the latest figures showing a 12.1 percent rise in November from a peak of 12.8 percent in August.

For the year ended November, inflation averaged 9.1 percent.

“The rate hi