Poll: Central Bank expected to hold interest rates unchanged

Oct 16, 2015 (LBO) – Sri Lanka’s Central Bank is expected to hold interest rates unchanged at the monthly monetary policy announcement on Tuesday, market participants told Lanka Business Online.

A poll of 13 market participants showed 12 expected no change in policy interest rates, while one expected a 25 to 50 basis point hike or a tightening of the Statutory Reserve Ratio.

“There is no need to change at the moment,” a primary dealer said, referring to low inflation and a continuation of recent central bank policy.

The next monetary policy announcement is scheduled for 7,.30am on October 20th.

Although the International Monetary Fund has suggested a tightening bias would be prudent with high credit growth to the private sector, inflation remains low with headline inflation a negative 0.3 percent in September.

Yields in the secondary market for gilts were flat today after the yield curve dropped sharply this week correcting to a previous expectation of monetary policy tightening and an outflow of dollars from government securities.

An outflow to foreign investors of 12.5 billion rupees from government securities this week brings the total outflow to around one billion dollars so far this year.

The maturing of the 1-11-15 treasury bond for around 80 billion rupees will be watched as it could be rolled over at a bond auction next week or the week after, with 9 billion rupees owed to foreign investors, a dealer said.

The Central Bank’s holding of government securities rose to 211 billion rupees on Friday, a level last seen in 2012. The peak holding of government securities during the 2012 cycle was 266 billion rupees in April 2012.

The Central Bank, however, does not believe this has resulted in any visible signs of the printing of money.