CB seen holding rates low today to support economy

Reuters: Sri Lanka’s Central Bank is expected to keep its policy interest rates unchanged at record lows for the sixth straight month on Tuesday, a Reuters poll found, as policymakers remain focused on spurring economic growth amid global headwinds.

Twelve out of 14 analysts surveyed expected the Central Bank of Sri Lanka to hold steady the standing deposit facility rate (SDFR) at 6.00% and the standing lending facility rate (SLFR) at 7.50%.

All 14 analysts predicted the statutory reserve ratio (SRR) for commercial banks to stay unchanged at 6.00%.

One analyst forecast the Central Bank to raise SDFR and SLFR by 50 basis points each, while another tipped 25-basis-point hikes each.

The International Monetary Fund last month said that the key policy rates were not “necessarily inappropriate”.

The Central Bank in April surprised markets with a 50 basis point rate cut to spur economic growth and boost consumer prices. Until April, rates had been steady for 14 months.

The policy stimulus appears to be helping. Sri Lanka’s economy grew 6.7% in the second quarter of this year compared with the same period a year earlier, accelerating from 6.0% in the first quarter.

Annual private sector credit growth hit a near three-year high of 21% in July, compared to 19.4% a month earlier, picking up speed after remaining sluggish at the start of the year.

The Government, however, is taking steps to curb speculative credit growth and earlier this month imposed a 100% margin on letters of credit for motor vehicles.

Despite policy rates at record lows, market interest rates have been on the rise since May following heavy local borrowing by the Government. The benchmark 91-day T-bill yield is hovering around a six-month high.