Reuters: Sri Lanka’s Central Bank is expected to keep its key interest rates unchanged this week, a Reuters poll showed, as policymakers focus on supporting the slowing South Asian economy while remaining vigilant to still high inflationary pressures.
All 11 economists in the survey 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.
They also forecast the statutory reserve ratio (SRR) to stay at 7.50 percent.
The International Monetary Fund (IMF) earlier this month urged Sri Lanka to maintain a tightening bias on monetary policy until clear signs emerge that inflationary pressures and credit growth are moderating.
“The Central Bank will see through the high inflation and maintain the policy rates as growth is the priority now,” Softlogic Stockbrokers Research Head Danushka Samarasinghe said.
“Without any changes in the policy rates, the market rates are adjusting. We see the market rates coming down with foreign money starting to come in.”
Central Bank Governor Indrajit Coomaraswamy has said the monetary authority does not see a need for a rate rise due to lower core inflation but it is cautiously monitoring the numbers.
The Central Bank has said it wants to curb credit growth to 15 percent by end this year. Annual private sector credit growth slowed to 17.5 percent in September from May’s 18.9 percent and well off a near four-year high of 28.5 percent hit in July 2016.
Consumer inflation was up 7.6 percent in November from a year earlier, slowing from a record high of 7.8 percent hit in the previous month.
Since the Central Bank’s last rate hike in March this year, treasury bill rates have fallen between 188-206 basis points, mainly driven by foreign buying of T-bonds, which is good for the economy but may also add to inflationary pressures.
The previous rate increases have dragged on the US $ 81 billion economy, which grew at an annual pace of 3.7 percent in the first nine months of 2017, slowing from 4.0 percent growth in the same period in the previous year.
The Central Bank has 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 stoked inflation.
FC Research forecasts no change in policy rates
FC Research, the research arm of First Capital Holdings PLC, yesterday ruled out a change in policy rates at the monetary policy review that will be announced this morning.
“FC Research believes that despite inflation remains high, GDP growth and credit growth are below our expectation.
Consideration of the above macroeconomic environment, the current monetary policy is appropriate and no change is required,” FC Research said in a brief note. According to FC Research, there is 90 percent bias towards the Central Bank keeping the policy rates unchanged and a 10 percent bias towards cutting the rates by 25 basis points.
FC Research in August upgraded private sector credit growth for 2117 to 16 percent from 14 percent amid a possible pickup towards the year end.
The private credit figure decelerated to Rs.50 billion in September 2017.
Sri Lanka’s GDP grew 3.3 percent in 3Q17, impacted by the poor performance of the agriculture sector due to unfavourable weather conditions.
Meanwhile, FC Research forecasts December headline inflation to be at 7.2 percent.
“We believe inflation will be under control over the next two to three months while there could be some upward pressure towards 2Q2018.”
All 11 economists in the survey 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.
They also forecast the statutory reserve ratio (SRR) to stay at 7.50 percent.
The International Monetary Fund (IMF) earlier this month urged Sri Lanka to maintain a tightening bias on monetary policy until clear signs emerge that inflationary pressures and credit growth are moderating.
“The Central Bank will see through the high inflation and maintain the policy rates as growth is the priority now,” Softlogic Stockbrokers Research Head Danushka Samarasinghe said.
“Without any changes in the policy rates, the market rates are adjusting. We see the market rates coming down with foreign money starting to come in.”
Central Bank Governor Indrajit Coomaraswamy has said the monetary authority does not see a need for a rate rise due to lower core inflation but it is cautiously monitoring the numbers.
The Central Bank has said it wants to curb credit growth to 15 percent by end this year. Annual private sector credit growth slowed to 17.5 percent in September from May’s 18.9 percent and well off a near four-year high of 28.5 percent hit in July 2016.
Consumer inflation was up 7.6 percent in November from a year earlier, slowing from a record high of 7.8 percent hit in the previous month.
Since the Central Bank’s last rate hike in March this year, treasury bill rates have fallen between 188-206 basis points, mainly driven by foreign buying of T-bonds, which is good for the economy but may also add to inflationary pressures.
The previous rate increases have dragged on the US $ 81 billion economy, which grew at an annual pace of 3.7 percent in the first nine months of 2017, slowing from 4.0 percent growth in the same period in the previous year.
The Central Bank has 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 stoked inflation.
FC Research forecasts no change in policy rates
FC Research, the research arm of First Capital Holdings PLC, yesterday ruled out a change in policy rates at the monetary policy review that will be announced this morning.
“FC Research believes that despite inflation remains high, GDP growth and credit growth are below our expectation.
Consideration of the above macroeconomic environment, the current monetary policy is appropriate and no change is required,” FC Research said in a brief note. According to FC Research, there is 90 percent bias towards the Central Bank keeping the policy rates unchanged and a 10 percent bias towards cutting the rates by 25 basis points.
FC Research in August upgraded private sector credit growth for 2117 to 16 percent from 14 percent amid a possible pickup towards the year end.
The private credit figure decelerated to Rs.50 billion in September 2017.
Sri Lanka’s GDP grew 3.3 percent in 3Q17, impacted by the poor performance of the agriculture sector due to unfavourable weather conditions.
Meanwhile, FC Research forecasts December headline inflation to be at 7.2 percent.
“We believe inflation will be under control over the next two to three months while there could be some upward pressure towards 2Q2018.”
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