March 14, 2012 / 1:01 AM / 6 years ago

RPT-POLL-Sri Lanka seen raising rates by 50 bps

(Repeats with no change ahead of official release)	
    * What: Sri Lanka March monetary policy rate decision
    * When: Wednesday, March 14 at 7:30 a.m. (0200 GMT

   * The central bank is expected to raise its repurchase and
reverse repurchase rates by 50 basis points for a second month
to 8.00 percent and 9.50 percent respectively to their highest
level in more than two years, according to a Reuters poll of 17
     The Statutory Reserve Ratio (SRR) is expected to be left
unchanged at 8 percent. 	
    - The central bank's lower economic growth forecast for
2012. Analysts expect the central bank to cut the GDP growth
forecast to around 7 percent. The central bank has already said
it will be between 7.0-7.5 percent, down from the earlier
forecast of 8 percent. 	
    - The impact of the central bank's measures to slash the
trade and current account deficits. The central bank raised key
policy rates by 50 basis points for the first time since 2007
and limited commercial banks' lending to 18 percent in last
month's monetary policy enouncement. 	
    The bank has also allowed the market to determine the rupee
exchange rate since Feb. 9, after spending more than $2.7
billion to stave off depreciation, removing a point of friction
with the International Monetary Fund (IMF) to continue a $2.6
billion loan.  	
    - If Sri Lanka accepts the remaining $800 million tranche
from the IMF loan, after turning it down in January. Officials
at the central bank have told Reuters the government may opt for
the last tranche as the country's reserves have now dwindled to
an amount that can finance only 3.5 months of imports.
    - Implications for post-war investor confidence. Sri Lanka's
$59 billion economy has started to see some external imbalances
after its long-term defence of the rupee, which made rating
agencies warn of the risk of rating downgrade. 	
    - If the central bank reverses its exchange rate policy. The
bank has already intervened once when the rupee hit a record
high on Feb. 28. It has employed other tactics, including moral
suasion and forcing banks to cut their net dollar opening
positions, to stop more depreciation.  
    - Interest rates. Market interest rates have risen by
115-143 basis points since the central bank raised policy rates
on Feb. 3. However, analysts say the central bank should allow
higher market interest rates, if it wants to stabilise the
    - If private-sector credit growth is cooling down, after the
central bank's tightening measures. 	
    - Whether the central bank raises rates or not, banks will
not lend as easily. Money market rates are expected to rise as
liquidity remains tight and makes borrowing more expensive. 	
    - Investors will shift from the stock market, which
is on a downward trend, to the fixed income market. 	
    - Economic growth should cool as higher borrowing costs
discourage imports and investments. 	
     Following are the poll's forecasts for where rates will be
after Wednesday's announcement:	
                     Repo     Reverse repo    SRR
                    (in pct)    (in pct)     (in pct)     
 Median              8.00         9.50       8.00
 Average             7.85         9.35       8.00   
 Minimum             7.50         9.00       7.75
 Maximum             8.50        10.00       8.50    
 No. of analysts       17           17         17
   NOTE: Analysts from the following institutions participated:	
   HSBC, Citibank, National Development Bank, Asia Capital,
Nations Trust Bank, Commercial Bank of Ceylon, Hatton National
Bank, People's Bank, Bank of Ceylon, Standard Chartered Bank, SC
Securities, CT Smith Stockbrokers, TKS Securities, MAS Capital,
ICICI Bank, Amana Bank, and Frontier Research. 	
($1 = 113.900 Sri Lanka Rupees)	
 (Reporting by Shihar Aneez; Editing by Bryson Hull)

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