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POLL-Sri Lanka seen keeping rates steady for 5th straight month
September 17, 2012 / 9:33 AM / in 5 years

POLL-Sri Lanka seen keeping rates steady for 5th straight month

* Key policy rates seen unchanged for fifth month
    * Weak rupee, drought has fuelled inflationary pressures
    * Announcement on Tuesday, Sept. 18 at 7.30 A.M. (0200 GMT

    By Ranga Sirilal
    COLOMBO, Sept 17 (Reuters) - Sri Lanka's central bank is
expected to keep interest rates steady for a fifth straight
month on Tuesday despite high inflation to help bolster economic
growth, which has been cooling due to sweeping policy measures
and an extended drought. 
    Twelve out of 13 analysts polled by Reuters expect the
repurchase and reverse repurchase rates to be left unchanged at
7.75 percent and 9.75 percent, respectively. Both rates are at
their highest in more than two years. One analyst expected the
central bank to raise both rates by 25 basis points.
    All the analysts surveyed expect commercial banks' statutory
reserve ratio (SRR) to be left unchanged at 8 percent.
    The central bank has already raised the key policy rates
twice since February, allowed a flexible exchange rate, and
limited this year's credit growth to prevent twin deficits in
trade and balance-of-payments.  
    Samantha Amerasinghe, economist at Colombo-based Standard
Chartered Bank, said rising inflationary pressures seem to be
dissipating now with food inflation contracting due to
improvements in supply. 
    "However, as headline inflation is still expected to hover
around double-digits as we approach year-end, we feel the
central bank has limited scope for monetary easing to stimulate
growth. A rate cut might be a likely scenario in Q1-2013 with
inflation expected to moderate by then," she told Reuters. 
     Inflation eased to 9.5 percent in August from a year
earlier from a 42-month high of 9.8 in July on improved food
    Central Bank Governor Ajith Nivard Cabraal said last month
there was no need for a monetary policy response to accelerating
inflation which he attributed largely to supply constraints
following the drought.
    Though repo and reverse-repo rates were raised by 75 and 125
bps, respectively since February, the yields in treasury bills
have risen between 276-441 bps in the same period.
    The rupee has fallen more than 16.5 percent against
the U.S. dollar since November, swelling the cost of Sri Lanka's
    Treasury Secretary P.B. Jayasundera on Sept. 6 told a
Reuters forum that Sri Lanka's economic growth this year may
range between 6.7 percent and 7.2 percent depending on the
impact of a drought that has lasted since the beginning of the
year. �
    The International Monetary Fund has also lowered its
forecast for Sri Lanka's economic growth to 6.75 percent this
year from an earlier estimate of 7.5 percent and less than the
central bank's 7.2 percent. 
    Following are the poll's forecasts for where rates will be
after Tuesday's announcement:      
                     Repo     Reverse repo    SRR
                   (in pct)    (in pct)     (in pct)     
 Median              7.75         9.75       8.00
 Average             7.77         9.77       8.00   
 Minimum             7.75         9.75       8.00
 Maximum             8.00        10.00       8.00    
 Rates in July       7.75         9.75       8.00
 No. of analysts       13           13         13
 ($1 = 131.8500 Sri Lanka rupees)

 (Writing by Shihar Aneez; Editing by Jacqueline Wong)

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