Register Online
Online Portal
Investment in Sri Lanka

POLL: Sri Lanka cbank seen keeping rates steady as growth slows

    * Thirteen out of 14 analysts predict steady rates
    * Full-year growth expected to slow on adverse weather
    * Tight fiscal, monetary policies also weigh on growth
    * Policy announcement due on Friday, June 23 at 0200 GMT

    COLOMBO, June 21 Sri Lanka's central bank is
expected to keep its key interest rates steady at more than
three-year highs at a policy meeting on Friday, a Reuters poll
showed, to boost faltering growth hit by adverse weather.
    Thirteen out of 14 economists surveyed predicted the central
bank would keep its standing deposit facility rate (SDFR) and
standing lending facility rate (SLFR) unchanged at 7.25 percent
and 8.75 percent, respectively.
    The lone outlier expected a 25-basis-point hike in both
    All 14 economists predicted the statutory reserve ratio
(SRR) to stay at 7.50 percent.
    "With the slower-than-expected first-quarter growth, the
central bank would keep the rates steady," said Dimantha Mathew,
head of research, First Capital Holdings PLC.
    "With improvement in the reserves, inflation under control,
and slowing private sector credit growth, they (the central
bank) might see the current conditions to be appropriate to hold
the rates steady."
    The $81 billion economy grew 3.8 percent in the quarter
ended March 2017 from a year earlier, slowing from the 5.3
percent growth in the previous quarter and marking its weakest
period since the second quarter last year.             
    The full-year growth is expected to be hit by extreme
weather, after the island nation faced its worst drought in 40
years in the first quarter and heavy rains resulting in floods
last month, the country's worst in 14 years.
    Sri Lanka's 2017 growth rate is likely to be significantly
lower than the official forecast, private economists have said.
    The central bank tightened monetary policy four times since
December 2015 through March this year to fend off pressure on
the fragile rupee and curb stubbornly high credit growth that
had pushed up inflation.
    Analysts said previous policy tightening cooled inflation
and private sector credit growth in the last two months. 
    Private sector credit grew 20.4 percent in March from a year
earlier, up from February's 21 percent. It has eased from a near
four-year high of 28.5 percent hit in July.
    Consumer prices rose 6.0 percent in May from a year earlier,
slowing from the previous month's 6.9 percent.               
    Policy tightening also dragged on the economy, which grew at
a slower 4.4 percent annual pace in 2016 compared with the 4.8
percent growth a year earlier. 
    The Sri Lankan rupee          fell 3.9 percent in 2016 and
has eased around 2.3 percent so far this year, pressured by
dollar demand from importers and withdrawal of foreign investors
from government securities in the first three months.
    The central bank has quit defending the rupee after it
missed an end-December reserve target set by the International
Monetary Fund for a $1.5 billion loan. 
Following are poll forecasts for rates on Friday: 
                    SDFR         SLFR        SRR
                  (in pct)    (in pct)     (in pct)    
Median              7.25         8.75       7.50
Average             7.27         8.77       7.50  
Minimum             7.25         8.75       7.50
Maximum             7.50         9.00       7.50   
Rates in May        7.25         8.75       7.50
No. of economists     14           14         14

 (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)