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Sri Lanka’s central bank likely to keep rates steady on Monday
August 29, 2015
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COLOMBO: Sri Lanka’s central bank is expected to keep its policy interest rates unchanged at record lows on Monday, a Reuters poll showed.

The central bank governor last month said that there could be a significant cut if a stable government was elected, but as of Friday afternoon, however, a stable coalition government had not been formed following the August 17 election.

Eleven out of 13 analysts surveyed said they expect the central bank to leave the repurchase rate or standing deposit facility rate (SDFR) at 6.00 per cent.

Twelve expect the reverse repurchase rate or standing lending facility rate (SLFR) to remain at at 7.50 per cent. All 13 analysts expected the statutory reserve ratio (SRR) for commercial banks to remain at at 6.00 per cent.

Two analysts expected the central bank would raise the SDFR by 25 basis points amid heavy government borrowing and in line with the market interest rate hike.

Another analyst expected the central bank to cut the SLFR by 50 basis points, though they predicted the central bank will keep the SRR steady.

Prime Minister Ranil Wickremesinghe’s United National Party (UNP) won last week’s parliamentary polls, but fell seven seats short of outright majority. Wickremesinghe and President Maithripala Sirisena’s parties have agreed to form a stable national unity government, which is yet to be established.

The central bank in April surprised markets with a 50 basis point cut to boost economic growth. Until April, rates were steady for 14 months.

Sri Lankan shares rose more than 1 per cent on Friday, rising for a third straight session, as investors bought into select battered stocks like conglomerate John Keells Holdings Plc JKH.CM after recent falls.

The main stock index (CSE) ended 1.06 per cent, or 77.38 points, higher at 7,350.52, moving further away from its lowest close since July 23 hit on Tuesday. The index had lost 3.2 per cent in the two sessions through Tuesday as foreign investors sold off risky assets on fears of a China-led global economic slowdown, and on selling by retail investors for month-end settlements.

“Some recovery is taking place, but not at full scale,” said Dimantha Mathew, a research manager at First Capital Equities. “There is selective buying of some of the stocks that fell sharply during the past few days.”

Foreign investors were net sellers of 175.5 million rupees ($1.31 million) worth of shares on Friday, extending the year-to-date net foreign outflow to 3.38 billion rupees.

Turnover stood at 1.06 billion rupees, less than this year’s daily average of 1.17 billion rupees. Shares of John Keells jumped 3.20 per cent, Ceylon Tobacco Company rose 2.04 per cent, Sri Lanka Telecom gained 2.97 per cent and Dialog Axiata advanced 0.88 per cent.

CURRENCY WEAKENS

The Sri Lankan rupee fell on Friday as a state-run bank, through which the central bank usually directs the market, raised the currency’s peg against the dollar by 15 cents, allowing the exchange rate to depreciate to 134.30.

The local currency ended 0.11 per cent weaker at 134.30 per dollar compared with Thursday’s close of 134.15.

The market had expected the central bank to allow the rupee to depreciate further, in line with other regional currencies that have declined against the dollar.

The state-run bank had reduced the currency’s peg against the dollar by 10 cents on Wednesday, allowing the exchange rate to appreciate to 134.15 after allowing a 75 cent fall on six occasions from Aug. 5 through Tuesday.

“The import demand was there but we saw some inward remittance in the latter part of the day,” said a currency dealer on condition of anonymity.

Reuters

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