The Central Bank of Sri Lanka left its key interest rates unchanged on Friday despite worries about inflationary pressure, warning that economic growth would slow in the second quarter compared with the first quarter.
However, analysts said the weakness of the Sri Lankan rupee was likely to help persuade the bank to raise rates in the months ahead.
"I think rates can be kept unchanged this month but we are expecting rates to go up by about 50 to 70 basis points in September and 1 percent by the end of the year," said Hasitha Premaratne, an analyst at HNB Stockbrokers.
The central bank left the repurchase rate at 7 percent and the reverse repo rate at 8.50 percent, it said in a statement after a monthly monetary policy meeting.
The central bank said it expected economic growth to slow in the year through the second quarter from the 6.2 percent expansion recorded in first-quarter data, as drought continues to hit agricultural output.
But it left its full-year economic growth forecast unchanged at 5-5.5 percent.
"It would be difficult for the current monetary policy stance and the fiscal discipline to be maintained if adjustments are not made in the economy to reflect adverse developments that are taking place," the bank said in a statement referring to global oil price hikes.
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