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Message: <blockquote data-quote="lkdood" data-source="post: 11998475" data-attributes="member: 92282">Sri Lanka's central bank on Friday raised its key interest rate for  the first time in five years and asked commercial banks to reduce  lending in the face of a worsening trade deficit.The Central Bank  of Sri Lanka hiked its benchmark lending rate by 50 basis points to 9.0  percent, the first rise since February 2007 when the rate was upped to  12.0 percent from 11.50 percent.The bank also asked commercial  banks to rein in lending, arguing that much of it financed the country's  surging import bill, owing to higher oil costs and cheap credit that  drew a flood of foreign-made vehicles into the country.The Indian  Ocean nation's trade deficit hit a record $8.83 billion in the first 11  months of last year, shrinking its foreign currency reserves.The  bank has spent more than $2 billion in recent months in direct market  interventions to buttress the Sri Lankan rupee against the dollar as the  trade deficit heaped pressure on the local currency.The bank  said Sri Lanka's foreign currency reserves fell to $5.9 billion at the  end of 2011, compared with $8.1 billion in July 2011.Among measures to discourage imports and encourage exporters, the country devalued its currency by 3.0 percent in November.Central  Bank governor Nivard Cabraal said earlier this week that the bank  misjudged the credit expansion, as well as Sri Lanka's growing trade  deficit."Imports were bigger than we expected and the credit  growth was also something that we did not anticipate," Cabraal told  reporters Tuesday.The latest interest rate increase came despite  the government announcing that inflation had moderated to 3.8 percent  year-on-year in January, compared to 4.9 percent a month earlier.Three  years ago, the government was forced to negotiate a $2.6-billion  bailout by International Monetary Fund at the end of the country's  bloody decades-long civil war.The government has since drawn down $1.8 billion, but announced earlier this week that it did not need the final tranche.<img src="http://www.google.com/hostednews/img/afp_logo.gif" alt="" class="fr-fic fr-dii fr-draggable " style="" /></blockquote>

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