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POLL-Sri Lanka seen keeping rates steady on Friday despite high inflation
March 7, 2013 / 9:32 AM / in 5 years

POLL-Sri Lanka seen keeping rates steady on Friday despite high inflation

* Central bank says inflation to ease in March
    * Fuel price hike yet to be reflected in inflation
    * Announcement on Friday, March 8 at 7:30 am (0200 GMT

    By Ranga Sirilal
    COLOMBO, March 7 (Reuters) - Sri Lanka's central bank is
expected to keep key monetary policy rates steady on Friday
despite annual inflation running at a near-record high, a
Reuters poll showed.
    Twelve out of 15 analysts polled by Reuters expect the
central bank's repurchase and reverse repurchase rates to be
left unchanged at 7.50 percent and 9.50 percent, respectively,
while three predicted a 25 basis point (bps) cut in both.
    All analysts surveted expected the central bank to keep
commercial banks' statutory reserve ratio (SRR) steady at 8
    The International Monetary Fund last month said high
inflation may limit the room for near-term monetary easing and
constrain the $59 billion economy's recovery. 
    The IMF also has warned Sri Lankan of slowing economic
growth, lower tax revenue, and high borrowing.  
    Sri Lanka's year-on-year inflation rate in February was at
near record high of 9.8 percent due to a spike in vegetable
prices after floods. 
    But the central bank expects the inflation to ease in coming
months due to lower vegetable prices and a higher base effect.
    "This month we expect a lower level of inflation at about
7.8 to 8 percent," Swarna Gunaratne, the central bank's chief
economist, told Reuters.   
    Sri Lanka, which relies heavily on imported fuel, raised
fuel prices to record levels on Feb. 23 to keep the state-owned
oil firm from suffering further losses due to increased global
oil prices. 
    Gunaratne, however, said the second round impact of fuel
price hikes could be reflected in future inflation. 
    The central bank has acknowledged that tough monetary policy
measures and a flexible exchange rate it adapted last year have
curbed economic activity.
    Economic growth is expected to have slowed to 6.5 percent
last year from a record 8.3 percent in 2011. The central bank
forecasts an expansion of 7.5 percent this year.
    In December, the central bank surprised markets by cutting
both money market rates by 25 bps, its first easing in nearly
two years, lowering them from three-year highs to boost
faltering economic growth as inflation pressures were expected
to ease. 
    Following are the poll's forecasts for where rates will be
after Friday's announcement:       
                     Repo     Reverse repo    SRR
                   (in pct)    (in pct)     (in pct)     
 Median              7.50         9.50       8.00
 Average             7.45         9.45       8.00   
 Minimum             7.25         9.25       8.00
 Maximum             7.50         9.50       8.00    
 Rates in February   7.50         9.50       8.00
 No. of analysts       15           15         15
 ($1 = 127.275 Sri Lanka rupees)

 (Editing by Shihar Aneez & Kim Coghill)

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