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RPT-POLL-Sri Lanka seen raising rates by 25 bps
April 5, 2012 / 3:37 AM / 6 years ago

RPT-POLL-Sri Lanka seen raising rates by 25 bps

(Repeats with no changes ahead of official release)

* What: Sri Lanka April monetary policy rate decision

* When: Thursday, April 5 at 5:30 p.m. (1200 GMT REUTERS FORECAST:

* The central bank is expected to raise both repurchase and reverse repurchase rates by 25 basis points to 7.75 percent and 9.25 percent respectively to their highest level in more than two and half years, according to a Reuters poll of 15 analysts.

The Statutory Reserve Ratio (SRR) is expected to be left unchanged at 8 percent.

FACTORS TO WATCH:

- If current interest rates are compatible with the new exchange rates. The central bank raised policy rates by 50 basis points on Feb. 3 while the rupee exchange rate was at 113.90 a dollar. But the rates remain the same while the exchange rate is now hovering around 125 after hitting 131.60 on March 19. Treasury Secretary P.B. Jayasundera on Wednesday said another 50 basis points rate hike could stabilise the economy.

- If import demand has dampened after the central bank raised policy rates, allowed a more flexible exchange rate, and put limits on credit. If the import demand is still high, the central bank will have allow a rise in benchmark treasury bill yields, which have risen 202-237 bps since the last rate hike.

- If inflation rises further after the recent increase in fuel, transport, and electricity prices. Annual inflation has hit a six-month high of 5.5 percent in March compared to 2.7 percent a month ago.

- If the central bank will have to further revise down the growth from the current 7.2 percent. A nalysts expect the GDP growth forecast to take a further hit with the rupee around 7 percent.

- If private-sector credit growth is cooling down, after the central bank’s tightening measures.

MARKET IMPACT:

- Whether the central bank raises rates or not, banks will not lend as easily, especially after the treasury secretary’s comments on a possible rate hike. Money market rates are expected to rise as liquidity remains tight and makes borrowing more expensive.

- Banks may compelled to raise deposit and saving rates to ease their liquidity crunch situation, while increasing lending rates to a market-competitive level.

- Investors will shift from the stock market, which is on a downward trend, to the fixed income market.

Following are the poll’s forecasts for where rates will be after Wednesday’s announcement:

Repo Reverse repot SIR

(in pct) (in pct) (in pct) Median 7.75 9.25 8.00 Average 7.85 9.37 8.03 Minimum 7.50 9.00 8.00 Maximum 8.50 10.00 8.50 No. of analysts 15 15 15

NOTE: Analysts from the following institutions participated:

HSBC, Citibank, National Development Bank, Nations Trust Bank, Commercial Bank of Ceylon, Hatton National Bank, People’s Bank, Bank of Ceylon, Standard Chartered Bank, SC Securities, CT Smith Stockbrokers ,Asia Capital, TKS Securities, Amana Bank and Frontier Research. ($1 = 128.3000 Sri Lanka Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Bryson Hull, John Stonestreet)

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