Sri Lanka to Keep Rates on Hold, No Plans to Sell any Bonds Immediately

18th May 2010, www.bloomberg.com, By Shamim Adam

Sri Lanka’s benchmark interest rates will likely remain unchanged this week as inflation remains “benign,” central bank Governor Nivard Cabraal said in an interview in Singapore today.

“We will see a similar situation being maintained because inflation figures have been moderate, it’s been quite benign,” he said after speaking at an investment seminar. “We still have a little slack, so most probably monetary policy will remain at the level that it is.”

Sri Lanka’s policy makers are seeking to stoke growth after the end of a civil war in 2009. The central bank, which will release a policy statement on May 20, left the reverse repurchase rate unchanged at 9.75 percent last month, its lowest level since August 2005, and maintained the repurchase rate at 7.5 percent.

Consumer prices in the capital, Colombo, rose 5.8 percent in April from a year earlier, according to the statistics department. Inflation averaged 12.6 percent in the five years through 2009.

Peace in the South Asian nation is attracting tourists and investment, helping companies such as John Keells Holdings Plc, which has port, supermarket, hotel, property development and brokerage arms. Sri Lanka’s stock index is one of the world’s best performers in the past year.

The economy may expand more than 6 percent this year, Cabraal told investors today, supporting the central bank’s forecast for growth of 6.5 percent in 2010, the fastest pace in three years.

The island doesn’t plan to sell any bonds immediately and will review its funding options after the budget is unveiled, he added. The governor said last month Sri Lanka may sell more dollar-denominated bonds this year to fund its budget deficit.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net