Sri Lanka's central bank surprised markets by raising its benchmark policy rate by 100 basis points to 8.75% on Tuesday, as it battles inflation and a weakening rupee amid rising energy prices.
The decision was driven by higher inflation and currency pressures linked to the US-Israeli war with Iran, which has driven up oil prices.
Seven out of 12 economists had expected only a 25 bps hike.
Sri Lanka, heavily reliant on imported fuel, has been hit hard by the energy shock, leading to a 40% fuel price hike, rationing, and public holidays on Wednesdays.
The country is still recovering from a severe financial crisis in 2022. Annual inflation rose from 2.2% in March to 5.4% last month.
The IMF will meet on Wednesday to decide on a $700 million disbursement under its $2.9 billion program, which would help boost reserves.
