Sri Lanka to cut rate

COLOMBO, Aug 7 (Reuters): Sri Lanka's central bank chief said on Thursday there is a greater chance of a cut in key monetary policy rates than a hike, despite the IMF's advice to keep key rates on hold for the near term.

The central bank chief's comment came a day after yields on one-year government debt fell to 6.45 per cent, below the rate of 6.50 per cent at which the central bank mops up liquidity from commercial banks.

The central bank has been maintaining the key policy rates at a multi-year low since January to spur economic growth.

"The chances of rate reduction are more than chances of rate increase," Central Bank Governor Ajith Nivard Cabraal told the news agency in a telephone interview.

The International Monetary Fund, which has lent $2.6 billion to Sri Lanka, last week urged the central bank to keep key interest rates on hold for the near term, saying a "cautious approach is warranted".

Despite the policy-easing measures, growth of credit extended to the private sector has slowed to 2.2 per cent year-on-year in May, its lowest since January 2010 and falling from 3.3 per cent in April, the latest data showed.

"We are satisfied with the credit conditions," Cabraal said referring to the credit data after May.

"We see some new sectors coming in and those avenues are now using the credit. The credit growth will pick up and reach to the level we have envisaged early this year."

The central bank has estimated the $67 billion economy to expand at 7.8 per cent this year, from a 7.3 per cent in 2013. It also expects private sector credit to expand by 14 per cent by the end of this year compared to 7.5 per cent at the end of 2013.