POLL-Sri Lanka's central bank seen keeping rates steady on Friday

Thu Nov 15, 2012 12:27pm IST

* Key policy rates seen unchanged for seventh month
    * High inflation remains a concern
    * Announcement on Friday, Nov. 16 at 1800 hours (1230 GMT

    By Ranga Sirilal
    COLOMBO, Nov 15 (Reuters) - Sri Lanka's central bank is
expected to keep interest rates steady for a seventh straight
month on Friday, a Reuters poll showed, and may join other banks
in Asia to loosen monetary conditions only after inflation eases
early next year.
    All 14 analysts polled by Reuters expect the repurchase and
reverse repurchase rates to be left unchanged at 7.75 percent
and 9.75 percent respectively. The two benchmarks are at their
highest in three years.
    One analyst expected the Central Bank of Sri Lanka to cut
commerical banks' statutory reserve ratio by 100 basis points in
a modest step to support growth, which is expected to slow down
to 6.8 percent this year from a record 8.3 percent in 2011.
    While central banks from Australia to Thailand have eased
policy to counter a global slowdown, Sri Lanka has maintained a
tight monetary stance to keep a lid on inflation as well curb
the country's fiscal and external deficits. 
    Since February it has raised rates twice and the government
said earlier this month that it expects to meet the fiscal
deficit target of 6.2 percent of the gross domestic product, the
level agreed with the International Monetary Fund under the
terms of a $2.6 billion loan.
    Central Bank Governor Ajith Nivard Cabraal said inflation
remained a key concern and that the bank is watching for signs
of moderation before setting policy.
    "We are keeping a sharp eye open for inflationary pressure.
Once we see that moderating, we will be inclined to take
necessary steps to ease monetary policy," Cabraal told Reuters.
    Annual inflation in October was running at 8.9 percent,
having hit a 42-month high of 9.8 percent in July.
    Samantha Amerasinghe, an economist at Colombo-based Standard
Chartered Bank, said inflation may ease further around February.
    "They might cut rates in the first quarter of next year,"
she said.
    The rupee has fallen more than 15.2 percent against
the U.S. dollar since November last year, swelling the cost of
Sri Lanka's imports and thus contributing to the inflationary
pressure. 
    Following are the poll's forecasts for where rates will be
after Friday's announcement:      
                     Repo     Reverse repo    SRR
                   (in pct)    (in pct)     (in pct)     
 Median              7.75         9.75       8.00
 Average             7.75         9.75       7.93   
 Minimum             7.75         9.75       7.00
 Maximum             7.75         9.75       8.00    
 Rates in October    7.75         9.75       8.00
 No. of analysts       14           14         14
 ($1 = 130.2500 Sri Lanka rupees)

 (Editing by Shihar Aneez and Sanjeev Miglani)
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