CB chief says rates may not change in 1Q

Tuesday, 12 February 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Central Bank Governor Ajith Nivard Cabraal played down the chances of another cut in official interest rates in the first quarter of 2013 in an interview with Reuters on Monday, a day ahead of the bank’s February announcement on policy.

The bank surprised markets in December by cutting its main rates by 25 basis points for the first time in nearly two years. That brought official borrowing costs down from three-year highs in a bid to boost faltering economic growth.

The yield in 364-day Treasury bill has fallen 175 basis points since those cuts and markets expect at least another 25 basis point reduction in the first half of this year. Cabraal said the bank would watch closely for the next two or three months whether market interest rates were falling too much and creating an unnecessary surge in credit.

“The markets themselves are beginning to respond with an appetite for a lower interest rate,” Cabraal told Reuters in an interview.

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“These (market rates) would be watched carefully over the next two to three months to ascertain whether it (policy) needs any other tweaking. My own view is initially in the next month or two it may not need any such adjustment.”

A Reuters poll of analysts had already forecast the bank to hold fire on any further reduction at Tuesday’s policy meeting.

Sri Lanka in January lifted its 18% ceiling for growth in banks’ borrowing to the private sector, imposed to curb unnecessary and cheap imports. Cabraal expects credit growth will be near 18.5% this year.

Cabraal expects inflation, which hit a near record high of 9.8% in January, to ease from March onwards.

Sri Lanka’s trade deficit narrowed 4.1% last year, helped by sweeping policy changes, though they likely took their toll on economic growth.

The Central Bank expects growth of 7.5% this year, up from an expected 6.5% last year but down from a record 8.3% in 2011.

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