Central Bank seen keeping rates steady on Friday

REUTERS: Sri Lanka’s Central Bank is expected to keep key interest rates unchanged at its policy review announcement on Friday, after unexpectedly cutting a key rate by 25 basis points in April to help bolster economic growth that has slipped to a 16-year low.

The island-nation’s economy grew 3.1 percent in 2017, the slowest since a recession in 2001 and well below the 4.5 percent pace of 2016, government data showed last month.

All 14 economists in the survey expected the Central Bank to keep its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) unchanged at 7.25 percent and 8.50 percent, respectively. They also saw the statutory reserve ratio (SRR) remaining steady at 7.50 percent.
“The Central Bank is likely to wait for the progress of last month’s rate cut and see the numbers,” said Ceylon Chamber of Commerce Chief Economist Shiran Fernando.

The Central Bank has estimated this year’s growth near 5 percent, higher than the International Monetary Fund (IMF)’s target of 4 percent, while the rupee has been hovering near a record low.,
Economic growth slowed last year after the Central Bank tightened the monetary policy four times since December 2015 through March last year before April’s policy easing to fend off pressure on the fragile rupee and curb stubbornly high credit growth that has stoked inflation.

The rupee has weakened 2.6 percent so far this year. It dropped 2.5 percent last year and 3.9 percent in 2016.

The previous rate increases along with tight fiscal measures to meet conditions imposed by the IMF for a US $ 1.5 billion loan have dragged on the economy.

The IMF in March said the Central Bank has prudently managed monetary policy amid price shocks and market volatility and urged it to remain focused on price stability as its primary objective.