Sri Lanka Holds Rates a Second Month While Awaiting IMF Loan

  • Recent tightening seen slowing credit in months ahead
  • Mahendran sees around $1 billion IMF loan boosting inflows

Sri Lanka left its benchmark rates unchanged for a second straight month as it awaits a loan of around $1 billion from the International Monetary Fund to help contain borrowing costs.

The Central Bank of Sri Lanka kept the standing lending facility rate at 8 percent and the standing deposit facility rate at 6.5 percent, it said in a statement on Tuesday. One of seven economists in a Bloomberg survey predicted a 50 basis points increase in the lending rate while the rest forecast no change. The deposit rate was unanimously seen on hold.

"A gradual slowdown in money and credit expansion is expected in the period ahead, as the recent monetary policy measures are expected to have an impact on the economy with some time lag," the central bank said.

Governor Arjuna Mahendran sees IMF support as a catalyst for more funding after mounting debts prompted Fitch Ratings in February to downgrade Sri Lanka’s credit ratings and Standard & Poor’s to cut the nation’s outlook to negative. Mahendran tightened policy in 2016 to cool monetary expansion and keep inflation in check.

Sri Lanka is also planning to sell as much as $3 billion of bonds in global international markets this year. The rupee is trading around a record low as the nation’s worsening fiscal and external indicators crimp flows.

The island nation’s economic growth slowed to 2.5 percent October-December from 5.6 percent the previous quarter and inflation eased to 2 percent in March from 2.7 percent in February. Gross domestic product is seen expanding 5.8 percent in 2016 after a 4.8 percent increase in 2015, and the pace will quicken to 7 percent in the medium term as investor sentiments improve, the central bank said in its annual report on Tuesday.

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