December 28, 2016 / 10:38 AM / 8 months ago

POLL-Sri Lanka c.bank most likely to keep rates steady

* Credit growth responds to July rate hike; economic growth
slows
    * Policy announcement due on Friday, Dec. 30 at 1230 GMT
    * Some economists expect surprise hike

    By Shihar Aneez
    COLOMBO, Dec 28 (Reuters) - Sri Lanka's central bank is most
likely to keep its key interest rates steady on Friday, even as
some economists expect further tightening to ease pressure on
the rupee following the Fed rate hike earlier in the month, a
Reuters polls showed.
    The central bank has already tightened its monetary policy
stance three times since December 2016 to fend off pressure on a
fragile rupee and curb stubbornly high credit growth that has
pushed up inflation.
    The tightening has already weighed on the economy, which
recorded a 4 percent year-on-year growth in the first nine
months compared to 5.7 percent in the same period last year,
official data showed. 
    Ten out of 13 economists surveyed in the poll expect the
central bank to keep both its standing deposit facility rate
(SDFR) and standing lending facility rate (SLFR) unchanged at
7.00 percent and 8.50 percent, respectively.
    Three economists expected 50-basis-point hike in both policy
rates. All 13 economists expect the statutory reserve ratio
(SRR) to stay at 7.50 percent.
    "The monetary board will be weighing up domestic and
external concerns. Domestically inflation and credit growth are
now under control," said Shiran Fernando, an analyst at
Colombo-based Frontier Research. 
    "It is difficult to rule out if the central bank will raise
the rates again because of the external pressure on the rupee." 
    The rupee has come under pressure because of lower interest
rates, higher imports, and foreign outflows from government
securities last year. 
    The currency has fallen around 3.7 percent since Aug. 25
through Wednesday due to dollar demand from importers and
foreign investors who have been exiting from the government
securities. 
    Foreign investors have net sold 55.2 billion rupees ($369.23
million) of government securities in the nine weeks ended Dec.
21. 
    Fears of U.S. President-elect Donald Trump's economic
policies leading to a rise in the greenback and interest rates
have also weighed on the currency.
    The International Monetary Fund (IMF) last month said that
Sri Lanka's macroeconomic and financial conditions have begun to
stabilise and the island nation's performance under its $1.5
billion loan programme is satisfactory.   
    Private sector credit grew 25.6 percent in September from a
year earlier, still robust but slowing from August's 27.3
percent and a near-four year high of 28.5 percent in July. 
Inflation rose 3.4 percent on-year in November, slowing from 4.2
percent in the previous month. 
    The central bank has raised both the SDFR and the SLFR by 50
bps each in February and July. That followed an increase of 150
bps in commercial banks' SRR in December. 
    Following are poll forecasts for rates on Friday: 
                    SDFR         SLFR        SRR
                  (in pct)    (in pct)     (in pct)    
Median              7.00         8.50       7.50
Average             7.12         8.62       7.50  
Minimum             7.00         8.50       7.50
Maximum             7.50         9.00       7.50   
Rates in November   7.00         8.50       7.50
No. of economists     13           13         13

 (Reporting by Shihar Aneez; Editing by Vyas Mohan)

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