Sri Lanka
Sri Lanka's central bank kept its benchmark interest rate unchanged for a 17th straight meeting to spur economic growth without further stoking the fastest inflation in Asia.
The Central Bank of Sri Lanka held its repurchase rate at 10.5 percent, the highest level since 2002, according to a statement issued in Colombo today. All 14 analysts surveyed by Bloomberg News predicted the decision.
Policy makers across Asia are grappling with soaring consumer prices even as a slowdown in the U.S. economy stifles demand for the region's exports. Inflation in Sri Lanka jumped to 28.2 percent in June, as bus fares rose by as much as 27 percent in May and train fares nearly doubled last month.
“The central bank would probably use the recent slowdown in growth as an excuse not to raise rates, even though a much sharper slowing of the economy is required to ensure macroeconomic stability,'' said Ashok Parameswaran, senior emerging markets analyst at Invesco in New York.
The yield on the 16 percent bond due in April 2009 was little changed at 18.45 percent at 9:27 a.m. in Colombo, according to First Capital Treasuries Ltd. The rupee was at 107.62 to the dollar, after closing yesterday at 107.65, according to Hatton National Bank Ltd.
Indonesia's central bank increased its benchmark interest rate for a third straight month in July, aiming to keep inflation below 12.5 percent this year. The Reserve Bank of India last month lifted its key rate twice to a six-year high of 8.5 percent. Thailand and the Philippines will probably both raise borrowing costs this week, according to Bloomberg surveys.
`Further Tighten'
Sri Lanka would “further tighten'' monetary policy by lowering the 2008 target for growth in reserve money, or the currency in circulation and commercial banks' deposits at the central bank, to 11.75 percent from 12.5 percent, according to today's statement cash advance loan. Consumer price gains are expected to ease from about August, the bank said earlier this month.
“Unlike other banks in the region, the Central Bank of Sri Lanka prefers to control the quantity of money as its main policy instrument,'' said Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore. Slowing growth should also “see demand-pull pressures on inflation abate.''
Economic growth weakened to 6.2 percent in the first quarter from a year earlier, from 7.6 percent in the previous three months. Escalating violence in the country's 25-year civil war, including bomb attacks in Colombo, curbed spending in the $27 billion economy.
Transport Costs
Sri Lanka's central bank has also kept monetary policy tight by reducing the amount of cash in the banking system and controlling credit demand.
Credit growth in Sri Lanka's private sector slowed to 15.1 percent in April from a year earlier, the lowest level since the end of 2003, according to the central bank. June's higher inflation rate was expected and due to an increase in fuel and transport costs in May, the central bank said.
Railway, education, health and postal employees stayed away from work July 10 to demand a 5,000 rupee ($46) monthly pay rise.
Sri Lanka's inflation may slow to 14 percent by the end of this year, central bank Deputy Governor W.A. Wijewardena said May 15. The increase in prices will ease to “around 8 percent'' by the end of 2009, he said.
The central bank said in January it was targeting annual inflation of about 10 percent for 2008.