CNA – Sri Lanka’s central bank is expected to keep interest rates unchanged at a policy meeting next week, a month after a 100 basis points increase ahead of a bailout package from the International Monetary Fund (IMF).
Inflation remains at slightly over 50 per cent, although it is on a downward trend, and growth is expected to shrink by three per cent in 2023 as the country struggles to emerge from its worst financial crisis in over seven decades.
A dozen out of the fourteen analysts and economists polled expect rates to be held by the Central Bank of Sri Lanka (CBSL) on Tuesday in its third policy rate announcement this year.
The central bank raised rates by a record 950 basis points last year to tame inflation and by 100 bps on March 3.
Sri Lanka needs to maintain high interest rates to drive down inflation that hit 50.6 per cent in February and maintain investor confidence as it embarks on the tricky task of debt restructuring, analysts said.
“Inflation needs to come down to about 15 per cent or below policy rates before they start lowering interest rates,” said Acuity Stockbrokers head of research Shehan Cooray. “Even with lower inflation, Sri Lanka will still have to keep interest rates quite high to maintain a cap on imports, manage reserves and bridge financing gaps over the next three years. Rates will not drop significantly this year.”
Any easing of rates will likely happen around September or October, analysts said, in parallel with central bank predictions of inflation falling to a single digit at the start of the third quarter.
