Bloomberg News

Sri Lanka Keeps Rates Unchanged to Damp Price Gains

November 16, 2012

Sri Lanka left interest rates unchanged for a seventh month to damp price gains and support spending at home as the economy cools.

The Central Bank of Sri Lanka kept its reverse repurchase rate at 9.75 percent and the repurchase rate at 7.75 percent, it said in a statement in Colombo today. The decision was predicted by all seven economists in a Bloomberg News survey.

Governor Ajith Nivard Cabraal has cut the forecast for expansion in 2012 to 6.8 percent and said last month the monetary authority’s priority is “inflation control.” The central bank increased borrowing costs earlier this year and let the rupee drop as part of an economic overhaul that sought to curb import demand and pare a trade deficit.

“We believe the priority for the central bank is to put the economy on a more sustainable path,” Gareth Leather, a London-based economist at Capital Economics Ltd., said before the release. “As a result, we think Sri Lanka’s interest rates will probably remain on hold in the near term.”

Sri Lanka faces an inflation rate of about 9 percent, among the highest in a basket of 17 Asia-Pacific economies tracked by Bloomberg, after a drought hurt farm output and the rupee weakened. Consumer prices in the capital, Colombo, rose 8.9 percent in October from a year earlier, after advancing 9.1 percent in September.

The rupee has weakened about 11 percent against the dollar this year and fell 0.1 percent to 129.95 at the close. The Colombo All-Share Index (CSEALL) of stocks was little changed.

Sri Lanka’s overseas sales of items from garments to tea have declined for all except one month this year. Gross domestic product may rise 6.8 percent in 2012, compared with an earlier estimate of 7.2 percent, Cabraal said in September.

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

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


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