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Sri Lanka Holds Rates to Spur Economic Growth, Cool Inflation

Sri Lanka left interest rates unchanged for a fourth month to support economic growth and contain inflation.

The Central Bank of Sri Lanka kept its reverse repurchase rate at 9.5 percent and the repurchase rate at 7.5 percent, it said in a statement in Colombo today. Six of eight economists in a Bloomberg News survey predicted no change. Two forecast a 0.25 percentage-point reduction in both benchmarks.

Governor Ajith Nivard Cabraal joins Asian counterparts such as Pakistan in holding rates to aid domestic spending, as Europe’s debt crisis clouds the prospects for a recovery in exports. Sri Lankan consumer prices rose 7.5 percent in March from a year earlier, the fastest after India in a group of 17 Asia-Pacific economies tracked by Bloomberg.

“The central bank will likely remain cautious until inflation stabilizes,” Samantha Amerasinghe, an economist at Standard Chartered Plc in Colombo, said before the release.

Cabraal is aiming for economic growth of 7.5 percent this year, from 6.4 percent in 2012.

“Monetary policy measures taken so far indicate that expected results are being realized, providing reasonable stimulus for a higher economic growth,” the central bank said in today’s statement. “At the same time, further deceleration of demand driven inflation on a sustainable basis would provide space for further easing of monetary policy.”

The central bank raised borrowing costs in February and April last year and let the rupee weaken to tackle a trade deficit that pressured currency reserves. It then cut interest rates in December.

The rupee has strengthened about 1.8 percent against the dollar in 2013. The Colombo All-Share Index is up 3.5 percent in that period.

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