October 31, 2016 / 3:15 PM / 3 years ago

UPDATE 1-Sri Lanka central bank keeps rates steady as credit slows

* Sri Lanka c.bank keeps rates steady for 3rd month in row

* Private sector credit growth down from 4-year highs

* VAT hike to cause one-off inflation rise - central bank (Adds details, quotes)

By Shihar Aneez and Ranga Sirilal

COLOMBO, Oct 31 (Reuters) - Sri Lanka’s central bank kept its benchmark interest rates on hold on Monday, as expected, saying that its monetary policy stance remained appropriate as credit growth slowed down.

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 growth was 27.3 percent year on year in August, slowing from July’s 28.5 percent, which was its highest since August 2012.

The central bank has raised both rates by 100 basis points since February, after increasing the statutory reserve ratio (SRR) by 150 basis points at the end of 2015.

The Monetary Board “was of the view that the current monetary policy stance is appropriate” and decided to maintain rates, the central bank said in a statement.

It 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 a fragile rupee.

Central bank chief Indrajith Coomaraswamy has said that he expected the credit expansion rate to slow to 18 percent by the end of 2016.

The on-hold decision, which was in line with a Reuters poll, comes days ahead of the government’s Nov. 10 budget for the next fiscal year.

“The credit growth is coming off, but it is not as fast as they were expecting. I think further tightening may not be warranted at the moment,” Danushka Samarasinghe, research head at Soflogic Stockbrokers, said.

Credit growth kept inflation high in October, reaching 4.2 percent on the year, from the previous month’s 3.9 percent.

The central bank said an increase in value-added-tax (VAT), which takes effect from November, will have a one-off impact.

“However...inflation is expected to remain in mid-single digit levels supported by prudent monetary policy measures and the realisation of the improvements in fiscal sector,” it said.

The central bank has estimated 2016 economic growth at around 5 percent, up from last year’s 4.8 percent.

The rupee has come under pressure due to lower interest rates, higher imports, and foreign outflows from government securities last year. But it steadied after the central bank raised $1.5 billion through a sovereign bond in July.

Sri Lanka’s economy grew 2.6 percent in the second quarter, slowing from 5.2 percent in the first. (Editing by Shri Navaratnam and Alexander Smith)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below