CB seen keeping rates steady after surprise cut

Reuters: Sri Lanka’s central bank is expected to keep its key policy interest rates unchanged at record lows on Friday, a Reuters poll showed.

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.

Eleven out of 13 analysts expect the central bank to leave the repurchase rate or standing deposit facility rate (SDFR) at 6.00%, the reverse repurchase rate or standing lending facility rate (SLFR) at 7.50%, and the statutory reserve ratio (SRR) for commercial banks at 6.00%. 

Two analysts expect the central bank to cut the SLFR by 50 basis points amid heavy government borrowing.

The central bank has forecast 7% growth this year, slowing from 7.4% last year.

Since January, state borrowing has risen sharply, as Sri Lanka’s new government has sharply increased state sector wages and lowered duties on key commodities. 

The increased borrowing has put pressure on government finances and pushed up yields on treasury bills by between 82 and 99 basis points until the central bank slashed the rates on April 15. 

Yields have fallen between 48-64 basis points since the rate cut.