POLL-Sri Lanka seen keeping rates steady on Wednesday

* Key policy rates seen unchanged for third month
* Drought sapping growth and pushing up food prices
* Weak rupee also fueling inflationary pressures
* Wednesday, July 11 at 0730 hours (0200 GMT

Sri Lanka's central bank is expected to keep key policy rates
steady on Wednesday for a third straight month as it looks to
support the cooling economy and ease pressure on the ailing
rupee, which has helped push inflation to a 41-month high.
Eleven out of 16 analysts polled by Reuters poll expected
repurchase rates to be left unchanged at 7.75 percent, while 12
analysts expectws reverse repurchase rates to be held steady at
9.75 percent. Both rates are at their highest in more than two
years.
Four analysts predicted both rates would be raised by 25
basis points, while one expected only the repo rate would be
increased by 25 basis points.
All 16 analysts expect commercial banks' statutory reserve
ratio (SRR) to be left unchanged at 8 percent.
Central Bank Governor Ajith Nivard Cabraal on Tuesday told
Reuters that Sri Lanka's current monetary policy rates are
appropriate despite a spike in inflation last month, which he
attributed largely to supply side contraints as a local drought
pushes up food prices.
"The central bank may keep the rates unchanged as they want
to strike a balance between inflation and growth, which is
already being hit by currency depreciation and the drought,"
said Danushka Samarasinghe, research head at TKS Securities.
The rupee has fallen nearly 18 percent against the
U.S. dollar since November, swelling the cost of its imports and
further straining the country's balance of payments.

The IMF has lowered its forecast for Sri Lanka's economic
growth to 6.75 percent this year from an earlier estimate of 7.5
percent and less than the central bank's 7.2 percent target due
to the global economic slowdown and the tough policy measures
Colombo has implemented in recent months.
Since February the central bank has raised policy rates
twice to their highest level in more than two and half years,
restricted credit and allowed a more flexible exchange rate.
Though repo and reverse-repo rates were raised by 75 and 125
basis points respectively since February, the central bank has
allowed the yields in treasury bills to rise between 252-406
basis points in the same period.
The sharp decline in the rupee has in particular aggravated
the country's oil import bill. It has had to buy more oil for
thermal power generation as the drought reduces hydroelectric
power supply.
Following are the poll's forecasts for where rates will be
after Wednesday's announcement:
Repo Reverse repo SRR
(in pct) (in pct) (in pct)
Median 7.75 9.75 8.00
Average 7.83 9.81 8.00
Minimum 7.75 9.75 8.00
Maximum 8.00 10.00 8.00
No. of analysts 16 16 16
($1 = 133.8000 Sri Lanka rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Kim
Coghill)