COLOMBO Reuters - The Central Bank of Sri Lanka CBSL kept its key rates steady on Thursday, as widely expected, as it awaits the impact of past hikes to trickle through the economy while a fall in global commodity prices is expected to soothe domestic inflation.
The Standing Lending Facility Rate was at 15.50%, while the Standing Deposit Facility Rate was at 14.50%.
Eleven out of 15 economists and analysts polled by Reuters said they expected rates to remain the same.
The central bank has raised rates by 950 basis points so far this year to battle high inflation in Sri Lanka, which is wilting under a severe economic crisis.
The government is struggling to pay for fuel, fertilisers, food and medicine because of a foreign exchange shortage.
In July, inflation hit 60.8% year-on- year and food costs increased by a searing 90.9%, according to the latest government data.
In order to arrive at this decision, the board considered the latest model-based projections, which point towards a larger than expected contraction in activity and a faster than expected easing of price pressures, CBSL said in a statement.
The measures taken by the bank and the government so far would help contain aggregate demand pressures while an anticipated decline in global commodity prices would pass through domestic prices.
According to Thilina Panduwawala, head of research at Frontier Research, it will be important to see if these initial signs of stabilisation continue in the positive direction the CBSL foresees, given the dynamic crisis situation.
The central bank said that persistent supply side disruptions, primarily due to shortages of power and energy, and uncertainties associated with sociopolitical developments, are expected to have a negative impact on economic growth in the second quarter.
Tens of thousands of people protesting against the economic crisis forced the ouster of President Gotabaya Rajapaksa in July and was replaced by Ranil Wickremesinghe.
The growth in the third quarter was likely to remain subdued, according to the central bank.
The economy will experience a steep contraction this year, according to analysts.
Our GDP forecasts remain unchanged at a 7.5% -- 9.0% contraction at this point. The 2 Q and 3 Q will be the worst hit. The steepest is likely to come in 2 Q, given the political tensions and fuel shortages seen in June and July, said Lakshini Fernando, a macroeconomist with Asia Securities.