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POLL-Sri Lanka cbank seen keeping policy rates steady to support growth
December 27, 2017 / 3:00 AM / 21 days ago

POLL-Sri Lanka cbank seen keeping policy rates steady to support growth

* All 11 analysts predict key rates to be unchanged

* Tight fiscal, monetary policies weigh on growth

* High inflation is not due to demand side pressure - cbank chief Policy announcement due on Thursday, Dec. 28 at 0200 GMT

COLOMBO, Dec 27 (Reuters) - Sri Lanka’s central bank is expected to keep its key interest rates unchanged this week, a Reuters poll showed, as policymakers focus on supporting the slowing South Asian economy while remaining vigilant to still high inflationary pressures.

All 11 economists in the survey predicted the central bank would keep its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) unchanged at 7.25 percent and 8.75 percent, respectively.

They also forecast the statutory reserve ratio (SRR) to stay at 7.50 percent.

The International Monetary Fund (IMF) earlier this month urged Sri Lanka to maintain a tightening bias on monetary policy until clear signs emerge that inflationary pressures and credit growth are moderating.

“The central bank will see through the high inflation and maintain the policy rates as growth is the priority now,” Danushka Samarasinghe, research head at Softlogic Stockbrokers.

“Without any changes in the policy rates, the market rates are adjusting. We see the market rates coming down with foreign money starting to come in.”

Central bank governor Indrajit Coomaraswamy has said the monetary authority does not see a need for a rate rise due to lower core inflation, but it is cautiously monitoring the numbers.

The central bank has said it wants to curb credit growth to 15 percent by end this year. Annual private sector credit growth slowed to 17.5 percent in September from May’s 18.9 percent and well off a near four-year high of 28.5 percent hit in July 2016.

Consumer inflation was up 7.6 percent in November from a year earlier, slowing from a record high of 7.8 percent hit in the previous month.

Since the central bank’s last rate hike in March this year, treasury bill rates have fallen between 188-206 basis points, mainly driven by foreign buying of t-bonds, which is good for the economy but may also add to inflationary pressures.

The previous rate increases have dragged on the $81 billion economy, which grew at an annual pace of 3.7 percent in the first nine months of 2017, slowing from 4.0 percent growth in the same period in the previous year.

The central bank has tightened monetary policy four times since December 2015 through March this year to fend off pressure on the fragile rupee and curb stubbornly high credit growth that stoked inflation.

Following are poll forecasts for rates on Thursday:

SDFR SLFR SRR

in pct in pct in pct Median 7.25 8.75 7.50 Average 7.25 8.75 7.50 Minimum 7.25 8.75 7.50 Maximum 7.25 8.75 7.50 Rates in Nov 7.25 8.75 7.50 No. of economists 11 11 11 $1 = 152.7500 Sri Lankan rupees Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sam Holmes

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