Sri Lanka's central bank to hold rates steady on Thursday

64
2
Sri Lanka's central bank to hold rates steady on Thursday

COLOMBO Sri Lanka's central bank is expected to keep its rates steady at its policy meeting this week as it continues to boost the debt-laden economy despite persistently high inflation.

In April last year, the island nation defaulted on its foreign debt for the first time, as the worst financial crisis since independence from Britain in 1948 collapsed its economy.

In March, Sri Lanka secured a $2.9 billion bailout from the International Monetary Fund (IMF) and aims to complete the restructuring debt talks by September.

Thirteen analysts and economists polled by Reuters predict that the Central Bank of Sri Lanka will hold benchmark rates steady on Thursday, at its fourth policy rate announcement this year. The decision is announced via a statement at 7: 30 a.m. 0200 GMT.

The Central Bank raised interest rates by a record 950 basis points last year to tame inflation and on March 3 by 100bps.

The central bank will likely wait for progress on the IMF programme and for inflation to fall below current interest rates before indicating a reduction, said Dimantha Mathew, head of research at First Capital.

For more than a year, the country has been grappling with rising prices, but signs suggest inflation is easing. Consumer prices slowed to 35.3 per cent in April from 50.3 per cent in March and is expected to hit single digits by September.

The remittances and tourism-reliant economy continues to suffer due to high debt and weak external demand. The IMF forecasts that GDP will contract 3 per cent this year after a 7.8 per cent contraction last year.

Sri Lanka is preparing for its first review of its IMF programme in September, and the country is planning for it to coincide with the completion of debt restructuring talks with creditors.

Credits and markets are still awaiting details of domestic debt restructuring plans, expected to be announced this month but will likely be pushed to mid-June, analysts said.

We think CBSL will also delay a rate reduction until the domestic debt restructuring or optimisation plan is announced, said Shehan Cooray, head of research at Acuity Stockbrokers.

There could be a rate reduction after policy rates are announced in July or August. First Capital is 16.50 per cent and 16.50 per cent.

University of Colombo 15.00 per cent 16.00 per cent