Bloomberg News

Sri Lanka Raises Rates for the First Time in Five Years

February 02, 2012

(Updates with economist’s comment in fourth paragraph.)

Feb. 3 (Bloomberg) -- Sri Lanka unexpectedly raised interest rates for the first time since 2007 to curb credit growth in the nation and ensure inflation stays low.

The Central Bank of Sri Lanka raised the reverse repurchase rate to 9 percent from 8.5 percent and the repurchase rate to 7.5 percent from 7 percent, the Colombo-based bank said in a statement on its website today. All seven economists in a Bloomberg News survey predicted rates would be unchanged.

Central bank Governor Ajith Nivard Cabraal’s move contrasts with neighbors from Indonesia to Thailand that have eased monetary policy at recent meetings as Europe’s debt crisis hampers global expansion. The island nation’s monetary authority is balancing the need to support growth with checking inflation, and the central bank has the instruments to cool demand pressure, Cabraal said this week.

“Raising rates will slow credit demand, which is a concern here,” Bimanee Meepagala, a Colombo-based analyst at NDB Aviva Wealth Management Ltd., the nation’s biggest non-state fund, said before the decision. “This move won’t hinder Sri Lanka from achieving its growth target.”

The benchmark Colombo All-Share Index of stocks fell 1.4 percent at the close yesterday, while the Sri Lankan rupee was little changed at 113.90 per dollar.

--Editors: Rina Chandran, Stephanie Phang

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net; Stephanie Phang at sphang@bloomberg.net


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