February 3, 2017 / 8:11 AM / 8 months ago

POLL-Sri Lanka c.bank may surprise with rate hike next week

    * Rupee under downward pressure on imports, foreign outflow
    * Six out of 13 analysts predict a rate hike
    * Credit growth responds to past tightening; economic growth
slows
    * Policy announcement due on Tuesday, Feb. 7 at 0200 GMT

    COLOMBO, Feb 3 (Reuters) - Sri Lanka's central bank could
raise its key policy rates in coming months if it skips a chance
to tighten next week, a Reuters poll showed, underlining renewed
pressure on the rupee          after the Federal Reserve's rate
hike last month.
    The central bank has already raised its benchmark rates 
three times since December 2015 to fend off pressure on the
fragile rupee and curb stubbornly high credit growth that has
pushed up inflation.
    The tightening has dragged on the economy, which grew at a
slower 4 percent annual pace in the first nine months of 2016
compared to 5.7 percent in the same period the year-before. 
    Policy makers face a tricky balancing act as the rupee comes
under fresh selling pressure, hurt by capital outflows thanks to
the Fed's more hawkish policy outlook and uncertainty caused by
U.S. President Donald Trump's policies on trade, immigration and
international relations. 
    That uncertainty was reflected in the Reuters poll showing
economists were split on their views. Seven out of 13 economists
surveyed predicted the central bank will keep both its standing
deposit facility rate (SDFR) and standing lending facility rate
(SLFR) unchanged at 7.00 percent and 8.50 percent, respectively.
    However, three economists expected a 50-basis-point hike in 
both policy rates while the rest tipped a 25-basis-point hike.
All 13 forecasters expect the statutory reserve ratio (SRR) to
stay at 7.50 percent.
    "The central bank will be weighing up the trend in credit
growth towards the end of 2016," said Shiran Fernando, an
analyst at Colombo-based Frontier Research, signaling policy
makers could move either way depending on where they see the
greatest risks for the economy.
     The Sri Lankan rupee          fell 3.9 percent in 2016 and
has eased around 0.3 percent so far this year, pressured by
dollar demand from importers and foreign investors' exiting from
government securities. 
    Private sector credit grew 22 percent in October from a year
earlier, slowing from September's 25.6 percent and easing from a
near-four year high of 28.5 percent hit in July.  
    Sri Lanka's consumer prices rose to a six-month high of 5.5
percent in January from a year earlier, accelerating from the
previous month's 4.5 percent under a revised calculation method.
              
    The government revised the base year and the composition of
market basket of the Colombo Consumer Price Index (CCPI) with
effect from January to reflect changes in the market. L4N1FL201]
    The central bank has raised both the SDFR and the SLFR by 50
bps each in February and July 2016. That followed an increase of
150 bps in commercial banks' SRR in December.     

Following are poll forecasts for rates on Tuesday: 
                    SDFR         SLFR        SRR
                  (in pct)    (in pct)     (in pct)    
Median              7.00         8.50       7.50
Average             7.19         8.69       7.50  
Minimum             7.00         8.50       7.50
Maximum             7.50         9.00       7.50   
Rates in December   7.00         8.50       7.50
No. of economists     13           13         13


 (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Shri
Navaratnam)
  

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