(Bloomberg) -- Sri Lanka’s central bank kept its benchmark interest rates unchanged, as policymakers monitor the impact of previous easing on demand in the economy.

The Central Bank of Sri Lanka held the standing lending facility rate at 9.50%. Four of the six economists surveyed by Bloomberg forecast a hold, while two predicted a 50 basis point cut. The deposit facility rate was also left unchanged at 8.5%.

Although inflation climbed for the first time in three months in April, the central bank says it doesn’t see a threat to its 5% price-growth target. Policymakers cut the key rates at their last meeting in March to support Sri Lanka’s economy, which is forecast to expand 3% this year.

“The Board noted that there remains space for market lending interest rates to decline further given the prevailing accommodative monetary policy stance and the continued decline in the cost of funds of financial institutions,” the central bank said in a statement.

Headline inflation is expected to converge to the targeted level over the medium term, despite transitory volatilities, the bank said.

An accommodative monetary policy is crucial for Sri Lanka, which is relying on an International Monetary Fund bailout to finance its recovery from a default-induced slump.

Local authorities are trying to reach an agreement with investors to restructure its defaulted global bonds to ensure financing from the nation’s $3 billion IMF loan program keeps flowing. President Ranil Wickremesinghe, whose term ends in November, aims to complete the debt restructuring by June. 

What Bloomberg Economics Says

The Central Bank of Sri Lanka’s decision to keep rates on hold on Tuesday — despite very low inflation and a stronger rupee — will likely prove negative for growth.

— Ankur Shukla, economist

For the full note, click here

Sri Lanka plans to vote for a president from September as the South Asian country looks to get back on track after the worst economic crisis in its independent history. 

--With assistance from Tomoko Sato, Shwetha Sunil, Aradhana Aravindan, Michael Sin and Clarissa Batino.

(Updates with central bank comment in fourth paragraph)

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