* Rates held steady, in line with expectations

* Bank expects gradual slowdown in money and credit expansion

* Sri Lanka in final stages of talks for $1.5-bln loan from IMF (Adds details, comments, writes through)

By Shihar Aneez and Ranga Sirilal


April 26 (Reuters) - Sri Lanka's central bank on Tuesday kept benchmark rates steady, as expected, as it gauges the effects of recent tightening, amid the final stages of talks with the International Monetary Fund (IMF) for a $1.5-billion loan to tide over a payments crisis.

Private sector credit growth, which was as high as 27 percent year-on-year in November last year, grew 26.5 percent in February, rising from January's 25.7 percent.

"Going forward, a gradual slowdown in money and credit expansion is expected in the period ahead, as the recent monetary policy measures are expected to have an impact on the economy with some time lag," the bank said in a statement.

The Central Bank of Sri Lanka left the standing deposit facility (SDF) rate and the standing lending facility rate (SLFR) at 6.50 percent and 8 percent, respectively.

The move follows a 50 basis point increase in the key policy rates in February and a 150 basis point hike in statutory reserve ratio (SRR) in December.

Economists were split over Tuesday's policy outcome, with six of 11 respondents in a Reuters poll predicting the central bank to keep the SDFR and SLFR rates steady and four expecting both rates to rise by 50 basis points. One analyst expected a rise of 25 basis points.

The move comes as Governor Arjuna Mahendran strives to halt a slide in the rupee currency, hit by low interest rates, a yawning fiscal deficit and capital outflows following the U.S. Federal Reserve's shift to a tightening cycle.

The government on Friday ordered exporters to bring home earnings held abroad, and improve foreign exchange inflows as loan repayments of principal and interest total reach just over $4.5 billion, or roughly 6 percent of gross domestic product.


"Credit growth continued to be at elevated levels in February, which is a concern, given the wait-and-see strategy," said analyst Shiran Fernando at Colombo-based Frontier Research.

Mahendran's efforts come as Sri Lanka battles a balance of payments crisis after a sharp depletion of its foreign exchange reserves by more than a third, to $6.2 billion in the 17 months to March, a legacy of massive debt piled up under the previous government.

Sri Lanka is seeking a $1.5-billion loan from the IMF to tide over its finances. The global lender on April 11 said it expected to complete negotiations with Sri Lanka for a three-year loan programme within two weeks.

The central bank, which sent confusing policy signals last year, also needs to manage an economy facing slack overseas demand. It is hoping higher borrowing costs will temper the risk of overheating in domestic private sector credit growth as well as a recent pick-up in inflation.

Sri Lanka has decided to stop excess government borrowing to get out of a debt trap, hoping for cheaper loans after the IMF deal is finalised. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Clarence Fernandez and Sherry Jacob-Phillips)