Sri Lanka cbank seen keeping rates on hold ahead of elections

Sri Lanka's central bank will likely leave its key interest rates on hold at a policy review on Friday, after a 50-basispoint cut in August, a Reuters poll showed, ahead of presidential elections and as lower bank rates go into effect.

Central bank chief Indrajit Coomaraswamy told Reuters after the last policy rate decision that it "is extremely unlikely to reduce" the key monetary policy rates before presidential elections to be held on Nov. 16.

All 13 economists surveyed by Reuters expected the Central Bank of Sri Lanka to keep both its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) steady at 7.00pc and 8.00pc, respectively.

All predicted the statutory reserve ratio (SRR) would also be kept at 5.00pc.

The central bank has loosened policy in several steps to boost sluggish growth after tourism and investments plummeted in Sri Lanka following deadly Easter Day bomb attacks by Islamist militants

The central bank cut rates by 100 bps in two meetings since May, reduced the SRR by 250 bps, releasing around 150 billion rupees ($832 million) of liquidity to the financial market.

It

also imposed caps on rupee deposit interest rates that enabled banks to reduce the cost of mobilising funds from the general public.

As a result, the commercial banks' average weighted prime lending rate (AWPR) has fallen 136 basis points as of Oct. 2.

The Monetary Board last month ordered banks to reduce interest rates on all rupee denominated loans by at least 200 basis points by Oct. 15, from levels in April.

"Since the central bank's objective of reducing market lending rates are expected to take effect with lending rate caps, another rate cut is unwarranted," said Danushka Samarasinghe, CEO at Softlogic Capital Markets.