22 June 2017 12:01 am
REUTERS: Sri Lanka’s Central Bank is expected to keep its key interest rates steady at more than three-year highs at a policy meeting tomorrow 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 rates. 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 First Capital Holdings PLC Head of Research Dimantha Mathew.
“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 US $ 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 US $ 1.5 billion loan.