April 5, 2012 / 3:47 AM / 5 years ago

RPT-POLL-Sri Lanka seen raising rates by 25 bps

(Repeats with no changes ahead of official release)	
    * What: Sri Lanka April monetary policy rate decision
    * When: Thursday, April 5 at 5:30 p.m. (1200 GMT

REUTERS FORECAST:	
   * The central bank is expected to raise both repurchase and
reverse repurchase rates by 25 basis points to 7.75 percent and
9.25 percent respectively to their highest level in more than
two and half years, according to a Reuters poll of 15 analysts. 	
     The Statutory Reserve Ratio (SRR) is expected to be left
unchanged at 8 percent. 	
           	
    FACTORS TO WATCH:	
    - If current interest rates are compatible with the new
exchange rates. The central bank raised policy rates by 50 basis
points on Feb. 3 while the rupee exchange rate was at
113.90 a dollar. But the rates remain the same while the
exchange rate is now hovering around 125 after hitting 131.60 on
March 19. Treasury Secretary P.B. Jayasundera on Wednesday said
another 50 basis points rate hike could stabilise the economy.
 	
    - If import demand has dampened after the central bank
raised policy rates, allowed a more flexible exchange rate, and
put limits on credit. If the import demand is still high, the
central bank will have allow a rise in benchmark treasury bill
yields, which have risen 202-237 bps since the last rate hike. 	
    - If inflation rises further after the recent increase in
fuel, transport, and electricity prices. Annual inflation has
hit a six-month high of 5.5 percent in March compared to 2.7
percent a month ago. 	
    - If the central bank will have to further revise down the
growth from the current 7.2 percent. A nalysts expect the GDP
growth forecast to take a further hit with the rupee around 7
percent. 	
    - If private-sector credit growth is cooling down, after the
central bank's tightening measures. 	
    	
    MARKET IMPACT:	
    - Whether the central bank raises rates or not, banks will
not lend as easily, especially after the treasury secretary's
comments on a possible rate hike. Money market rates are
expected to rise as liquidity remains tight and makes borrowing
more expensive. 	
    - Banks may compelled to raise deposit and saving rates to
ease their liquidity crunch situation, while increasing lending
rates to a market-competitive level. 	
    - Investors will shift from the stock market, which
is on a downward trend, to the fixed income market. 	
     Following are the poll's forecasts for where rates will be
after Wednesday's announcement:	
                    Repo     Reverse repot    SIR	
                  (in pct)    (in pct)     (in pct)     	
Median              7.75         9.25       8.00	
Average             7.85         9.37       8.03   	
Minimum             7.50         9.00       8.00	
Maximum             8.50        10.00       8.50    	
No. of analysts       15           15         15	
   NOTE: Analysts from the following institutions participated:	
   HSBC, Citibank, National Development Bank, Nations Trust
Bank, Commercial Bank of Ceylon, Hatton National Bank, People's
Bank, Bank of Ceylon, Standard Chartered Bank, SC Securities, CT
Smith Stockbrokers ,Asia Capital, TKS Securities, Amana Bank and
Frontier Research.	
($1 = 128.3000 Sri Lanka Rupees)	
	
 (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Bryson
Hull, John Stonestreet)

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