March 22, 2017 / 11:02 AM / 9 months ago

POLL-Views split on Sri Lanka rate hike, tightrope walk for cbank

    * Rupee under downward pressure despite past rate hikes
    * Economic growth slows on past tightening
    * Eight out of 15 analysts predict steady rates, seven see
    * Policy announcement due on Friday, March 24 at 0200 GMT

    COLOMBO, March 22 (Reuters) - Sri Lanka's central bank could
raise its key policy rates in the coming months if it skips a
chance to tighten this week, a Reuters poll showed, two weeks
after the International Monetary Fund called for further
    Sri Lankan policymakers are facing a tricky balancing act as
the rupee has come under renewed pressure, hurt by capital
outflows, but a rate hike could further slow down an already
fragile economic growth.
    The IMF urged the Sri Lankan central bank on March 7 to be
ready to tighten monetary policy if credit growth or inflation
do not abate, and to rebuild international reserves while
maintaining exchange rate flexibility.              
    The central bank last raised the policy rates in July and
has since kept the rates steady despite pressure on the fragile
rupee and high credit growth. 
    Eight out of 15 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.
    Three economists, however, expected a 50-basis-point hike in
 both policy rates, while three others tipped a 25-basis-point
hike and another analyst expected a 50-basis point hike only in
SLFR. All 15 forecasters expect the statutory reserve ratio
(SRR) to stay at 7.50 percent.
    The central bank has raised its benchmark rates three times
since December 2015, to fend off pressure on the fragile rupee,
which has fallen 1.5 percent so far this year after a 3.9
percent slide last year. Meanwhile, the credit growth is
stubbornly high and has pushed up inflation.
    "Hiking rates while the economy is undergoing a period of
stress in the midst of a 40-year drought would be unwise.
Similarly, cutting rates is difficult with inflation this high
even though it is on account of one-off factors," said Firat
Unlu, lead India analyst at the Economist Intelligence Unit.
    Sri Lanka's annual economic growth slowed to 4.4 percent in
2016 from 4.8 percent a year earlier, dragged down by the past
tightening moves.               
    Consumer price inflation hit a record high of 6.8 percent
last month under a new index.             
    Foreign investors net sold government securities worth 63.3
billion rupees ($417.8 million) so far this year. 
    Private sector credit grew 21.9 percent in December 2016
from a year earlier, edging up from November's 21.1 percent, but
easing from a near four-year high of 28.5 percent hit in July.
    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             7.15         8.68       7.50  
Minimum             7.00         8.50       7.50
Maximum             7.50         9.00       7.50   
Rates in February   7.00         8.50       7.50
No. of economists     15           15         15
($1 = 151.5000 Sri Lankan rupees)

 (Reporting by Ranga Sirilal and Shihar Aneez; Editing by
Amrutha Gayathri)

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