Sri Lanka Rates Appropriate for Coming Months, Cabraal Says

Sri Lanka’s interest rates are at an appropriate level and the central bank probably will keep borrowing costs steady for the next three to six months if current conditions persist, Governor Ajith Nivard Cabraal said.

“There may be some other adjustments that we may need to make in the economy as we move on, but from the rates point of view, it seems appropriate in the current circumstances,” Cabraal said in an interview in Singapore today. “As it is now, there doesn’t seem to be a need for any change, but if we do see any changes, we will be quick to react.”

The central bank lowered one key interest rate earlier this month after unexpectedly cutting borrowing costs in October. The decision ignored advice from the International Monetary Fund to hold off on further easing to allow time for earlier cuts to take effect.

“The monetary sector looks stable,” Cabraal said on Bloomberg Television today. “Growth momentum has been back to normal. The exchange rate has been stable. All those conditions give us the confidence to say that the policy measures that we have taken in the past have been working and are working.”

Inflation has been in check and the outlook for price gains is benign, Cabraal said. Consumer prices rose 4.7 percent in December from a year earlier, the slowest pace since February 2012.

The Sri Lankan rupee, which slipped 2.4 percent in 2013, was little changed today at 130.74 a dollar, while the Colombo All-Share Index fell 0.1 percent.

“Inflation is under control, imports are under check and growth positive, which encourages the low interest rate scenario,” said Bimanee Meepagala, a Colombo-based analyst at NDB Aviva Wealth Management Ltd. “We see limited further downside for bond yields. We could see yields tighten, only if there is overheating from increased credit demand, or if there’s pressure on the exchange rate with outflows resulting from Fed tapering or global repayments.”

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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