* Sri Lanka c.bank keeps rates steady for 4th month in row
* Credit growth moderates for 2nd month from 4-year highs
* Rupee liquidity has returned to balanced level - c.bank
* Impact of 2017 budget on inflation is favourable - c.bank
(Adds details, quotes)
By Shihar Aneez and Ranga Sirilal
COLOMBO, Nov 29 Sri Lanka's central bank kept
its benchmark interest rates steady on Tuesday for a fourth
straight month, as expected, saying its policy settings remained
appropriate as high credit growth shows signs of moderating.
The Central Bank of Sri Lanka, which has tightened monetary
policy three times since December, left the standing deposit
facility rate (SDFR) and the standing lending facility rate
(SLFR) at 7 percent and 8.5 percent, respectively.
Private sector credit grew 25.6 percent in September from a
year earlier, still robust but slowing from August's 27.3
percent and a near-four year high of 28.5 percent in July.
"In the meantime, rupee liquidity conditions in the domestic
money market have returned to a balanced level, which will help
stabilise market interest rates at current levels," the central
bank said in a statement.
The central bank has raised both rates by 100 basis points
(bps) since February, after increasing the statutory reserve
ratio (SRR) by 150 bps at the end of 2015.
The central bank last raised rates by 50 basis points in
July, following stubbornly high private sector credit growth and
relatively strong inflationary pressures. The higher rates were
also aimed at reducing pressure on the fragile rupee currency.
Analysts said tight fiscal policies for 2017, announced
earlier this month, could give the central bank room to hold off
from raising interest rates next year.
Shiran Fernando, an analyst at Colombo-based Frontier
Research, said Tuesday's decision was largely positive as credit
growth is declining, but added that concerns about inflation and
external risks remain.
The rupee had come under pressure last year because
of lower interest rates, higher imports and foreign outflows
from government securities.
It steadied after the central bank raised $1.5 billion
through a sovereign bond this July, but pressure on emerging
market currencies is expected to intensify if the U.S. Federal
Reserve raises rates as widely expected in December and hints at
further tightening in 2017.
The International Monetary Fund (IMF) said on Saturday that
Sri Lanka's macroeconomic and financial conditions have begun to
stabilise and the island nation's performance under its $1.5
billion loan programme is satisfactory.
Strong credit growth continued to fuel price pressures in
October, with inflation reaching 4.2 percent on-year, from the
previous month's 3.9 percent.
The central bank said adjustments made to the tax structure
from this month are expected to have a one-off impact on
inflation from November ,while the overall impact of the budget
2017 on inflation is estimated to be favourable.
It has estimated 2016 economic growth at around 5 percent,
up from last year's 4.8 percent.
Sri Lanka's economy grew 2.6 percent in the second quarter
from a year earlier, slowing from 5.2 percent in the first.
(Reporting by Shihar Aneez and Tanvi Mehta; Editing by Kim