Sri Lanka Holds Rates to Slow Price Gains as Growth Sputters
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. All seven economists in Bloomberg News survey predicted no change in the repurchase rate. Six forecast no change in the reverse repurchase rate and one a cut to 9.25 percent.
Governor Ajith Nivard Cabraal said Jan. 2 that Sri Lanka’s central bank will strive to contain price pressures while bolstering economic growth this year. Cabraal on Dec. 12 unexpectedly lowered borrowing costs for the first time since 2011, after two rate increases in 2012.
“The 25 basis-point rate cut in December to support growth was a pre-emptive move, as inflation remains stubbornly high,” Samantha Amerasinghe, an economist at Standard Chartered Plc in Colombo, said before the decision.
Sri Lanka’s inflation rate of about 9 percent is among the highest in a basket of 17 Asia-Pacific economies tracked by Bloomberg, as a drought hurt farm output and officials let the rupee weaken in 2012 to curb import demand and pare the trade deficit.
“Inflation is projected to moderate from March 2013 and reach mid-single digit levels thereafter,” the central bank said in today’s statement. The nation expects increased capital inflows this year, it said.
The rupee has fallen about 10 percent against the dollar in the past year and slipped 0.1 percent at yesterday’s close. The Colombo All-Share Index (CSEALL) of stocks advanced 1.1 percent.
The island’s $59 billion economy expanded 4.8 percent in the third quarter, the slowest pace since 2009. Sri Lanka seeks inflation in the mid-single digits, and the government’s infrastructure drive will help boost expansion to 7.5 percent in 2013 from an estimated 6.5 percent in 2012, Cabraal said Jan. 2.
To contact the reporter on this story: Anusha Ondaatjie in Colombo at email@example.com