Sri Lanka cenbank says T-bill halt will cut rates

By Shihar Aneez

COLOMBO, Sept 8 (Reuters) - Sri Lanka's central bank on Monday said its suspension of benchmark 91-day treasury bills, along with easing inflation, would gradually reduce market interest rates this year.

The central bank has suspended 91-day T-bill auctions for the last three weeks, and has only made 182-day and 364-day bills available for investors. Banks in Sri Lanka base their own interest rates off of the benchmark 91-day T-bill rate.

"There will be gradual downward movements in interest rates in the remaining period of the year," C.J.P. Siriwardena, superintendent ofthe central bank's public debt department, told Reuters.

He said the bank would restart the 91-day auctions when rates stabilised to a level he declined to reveal.

He also declined to give a forecast on where rates would be by the end of the year: "It is too early to tell. We are expecting further interest rate reduction in the market with the slowing down of inflationary expectations."

The 91-day T-bill rate hit an 11-year high of 21.30 percent on Dec. 26, when government borrowed heavily from the local market.

Heavy buying pressure on 91-day T-bills, and the bank's goal of spreading out T-bill investments to medium and longer terms, were the main reasons behind the decsion to suspend, Siriwardena said.

This latest suspension marks the third time the bank has withheld the 91-day treasury bill auctions since May 6, when it opened up 10 percent of around 375 billion Sri Lankan rupees ($3.48 billion) worth of T-bills for foreign investors.