CB seen keeping rates steady as growth slows

Reuters: The 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% and 8.75% 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%.

“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% in the quarter ended March 2017 from a year earlier, slowing from the 5.3% 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% in March from a year earlier, up from February’s 21%. It has eased from a near four-year high of 28.5% hit in July.

Consumer prices rose 6.0% in May from a year earlier, slowing from the previous month’s 6.9%.               

Policy tightening also dragged on the economy, which grew at a slower 4.4% annual pace in 2016 compared with the 4.8% growth a year earlier. 

The rupee fell 3.9% in 2016 and has eased around 2.3% 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.

Rupee ends steady; importer dollar demand weighs

Reuters: The rupee ended steady on Wednesday as exporter dollar sales offset demand for the greenback from importers, which weighed on the spot currency.

The spot rupee, which traded for a third straight session after being inactive for six weeks, ended at 153.30/35 per dollar, steady from Tuesday’s close of 153.30/40.

The spot rupee started trading on Monday for the first time since 5 May when the Central Bank had fixed its reference rate at 152.50.

“The demand was there, but today there was some selling as well,” said a currency dealer, requesting anonymity.

Dealers said they expect seasonal demand for dollars to pick up from August.

The Central Bank has set a target of $ 1.2 billion in direct market purchases of dollars to boost the island nation’s reserves this year, mainly to achieve a target set by the International Monetary Fund in return for a three-year $ 1.5 billion loan.

Shares close at 17-mth high ahead of CB review

Reuters: Sri Lankan shares rose on Wednesday to a 17-month closing high, on gains in financials and food and beverage stocks, ahead of the central bank’s policy review later in the week where interest rates are expected to be held steady.

The Colombo stock index gained 0.38% at 6,731.25, its highest close since 7 January 2016.

Foreign investors bought a net Rs. 259.1 million ($ 1.7 million) worth of shares on Wednesday, extending the year-to-date net foreign inflow to Rs. 20.88 billion in equities.

Turnover was Rs. 903.2 million ($ 5.9 million), compared with this year’s daily average of Rs. 909.3 million.

“We are getting into a bullish territory again after a slowdown,” said Dimantha Mathew, head of research, First Capital Holdings Plc.

“Investors do not expect a rate hike this month and they wait for the policy rate announcement. The overall market is bullish with the hope of no rate hike.”

The Central Bank is expected to keep its key policy rates steady on Friday, a Reuters poll showed.

Shares of conglomerate John Keells Holdings Plc rose 1.2%, while Hatton National Bank Plc ended 1.2% higher.