January 28, 2011 / 8:16 AM / 8 years ago

POLL-Sri Lanka Jan y/y inflation seen steady

 * What: Sri Lanka's January inflation release
 * When: Monday, Jan. 31, around 3.00 p.m. (0930 GMT)
 REUTERS FORECAST:
 * Forecast: Both annual inflation and 12-month moving
average inflation to have stabilised at 6.9 percent and 5.9
percent respectively, unchanged from December figures.
 FACTORS TO WATCH:
 - Reasons for inflation stabilising. Many analysts said as
in the past, the island nation's inflation figures may show
minimum changes from the previous month, despite high local and
global food prices. The main opposition United National Party
had said the index fails to reflect real consumer spending
patterns. [ID:nSGE70J05K]
 - Impact of the recent floods on inflation. At least 21
percent of the Sri Lanka's staple rice crop has been destroyed
and analysts expect a food shortage could threaten price
stability, although the government has adequate stocks.
[ID:nSGE70CB8P]
 - If there are signs of demand-driven inflation as the
central bank surprisingly cut policy rates to six-year lows
earlier this month. [ID:nSGE70A00Z]
 - Steps to curb inflation, with the post-war economy
picking up and private sector credit growth expanding a
more-than-expected 23.1 percent month-on-month in November in
response to central bank monetary policy rate reductions. The
central bank had originally expected private sector credit to
grow at 15 percent by December. Sri Lanka's $50 billion economy
is expected to have expanded around 8 percent last year.
 - Whether the central bank will use any tightening measures
to curb possible demand-driven inflation.
 - Impact of 2011 budget proposals and relaxation of strict
exchange rate controls on inflation and interest rates given
the government's direction for private sector-led economic
growth while agreeing to the IMF's budget deficit reduction
path.
 MARKET IMPACT:
 - If lower or unchanged inflation would be a welcome move
for banks, which are still waiting corporate to borrow for
expansions and new investments. On the other hand, corporates
may take wait to see where official inflation moves amid the
sharp rise in food and other commodity prices, despite low
interest rates.
 - Low interest rates and low inflation will push more
investors into the booming Colombo Stock Exchange .CSE, due
to lower returns from fixed income instruments.
 Following is the poll's forecast for the January inflation
data due to be released on Monday: (Inflation figures are in
percent)
---------------------------------------------------------------
 CCPI                      Index     12-Mo Avg     vs year
ago
---------------------------------------------------------------
 Median                       231.3         5.9            6.9
Average                      231.2         5.9            6.8
Low                          228.9         5.8            5.8
High                         233.5         6.0            7.9
No. of contributors             13          13             13 
  Note: The following contributors participated in the poll:
Commercial Bank of Ceylon, HSBC, National Development Bank
(NDB), Hatton National Bank (HNB), Bank of Ceylon, Citi Bank,
CT Smith Research, TKS Securities, People's Bank, Asia
Securities, Standard Chartard Bank, Nations Trust Bank,
Deutsche Bank, and FCT Smith Research.
 (Reporting by Shihar Aneez; Editing by Bryson Hull)



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