POLL-Sri Lanka c.bank seen keeping rates steady Thursday, cutting in H1

Wed Jan 16, 2013 11:16am IST

* Rates seen steady Thursday after unexpected cut last month
    * Analysts expect at least 25 bps cut in first half
    * Announcement on Thursday, Jan. 17 at 0730 hours (0200 GMT

    By Ranga Sirilal
    COLOMBO, Jan 16 (Reuters) - Sri Lanka's central bank is
expected to keep key policy rates steady on Thursday after last
month's surprise rate cut, a Reuters poll showed, but analysts
see further easing in monetary conditions during the first half.
    Eleven out of 14 analysts polled by Reuters expect both the
repurchase and reverse repurchase rates to be left unchanged at
7.50 percent and 9.50 percent, respectively, this week.
    Two analysts expected the central bank to cut both rates by
25 basis points (bps), while one predicted the monetary
authority to cut only the reverse repurchase rate by 25 basis
points. 
    Thirteen analysts expected the central bank to keep
commercial banks' Statutory Reserve Ratio (SRR) steady at 8
percent, while one predicted a 50-basis-point cut. 
    In December, the central bank surprised markets by cutting
both rates by 25 bps, the country's first easing in nearly two
years, lowering them from three-year highs to boost faltering
economic growth as inflation pressures were expected to ease.
 
    Growth is expected to have slowed to 6.5 percent last year
from a record 8.3 percent in 2011. The central bank forecasts
expansion of 7.5 percent this year.
    "We believe the 25 bps rate cut in December to support
growth was a pre-emptive move, as inflation remains stubbornly
high," Samantha Amerasinghe, an economist at Colombo-based
Standard Chartered Bank, told Reuters.
    She said growth-related concerns have emerged following a 
weaker-than-expected expansion of 4.8 percent in the third
quarter from a year earlier. 
    "Premature policy easing would risk fuelling inflationary
pressures," Amerasinghe said.
    Other analysts said they expect at least another 25 basis
points of rate cuts in the first half of the year. 
    Annual inflation eased to 9.2 percent in December from a
three-month high of 9.5 percent in November.
 
    The central bank removed a credit ceiling from Jan. 1 to
boost growth after it maintained a tight monetary stance in 2012
to keep a lid on inflation and to curb the country's fiscal and
external deficits. 
    The central bank raised rates twice since last February,
allowed rupee exchange rate flexibility, and imposed a
credit ceiling after the country saw a record trade deficit than
resulted in a negative balace-of-payments gap. 
    The government in November said 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.
    The rupee fell 10.7 percent against the U.S. dollar last
year, swelling the cost of Sri Lanka's imports and adding to
inflationary pressures. 
    Following are the poll's forecasts for where rates will be
after Thursday's announcement:       
                     Repo     Reverse repo    SRR
                   (in pct)    (in pct)     (in pct)     
 Median              7.50         9.50       8.00
 Average             7.46         9.45       7.96   
 Minimum             7.25         9.25       7.50
 Maximum             7.50         9.50       8.00    
 Rates in December   7.50         9.50       8.00
 No. of analysts       14           14         14
 ($1 = 126.55 Sri Lanka rupees)

 (Editing by Shihar Aneez & Kim Coghill)

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