First Capital Research (FCR) predicts a 50% probability for the Central Bank of Sri Lanka (CBSL) to maintain the policy rates at its current levels at this week’s monetary policy review.
“As per our view, at the upcoming policy meeting, there is a 50% possibility for CBSL to maintain the rates at its current levels allowing further strengthening of key economic indicators. Moreover, there is a 30% possibility to relax its policy rates by 50bps and a 20% probability for a rate cut of 100bps, in order to prevent a major economic downturn as well as to signal the market participants a clear direction on the way forward.,” FCR said in its pre-policy analysis report.
Moreover, considering the persistent improvement in liquidity in the banking system, FCR assigned a higher probability of 90% for the SRR to remain unchanged.
Uncertainty related to Domestic Debt Optimisation (DDO) and Outlook, facilitation of a faster reduction in inflation, and continuous negative system liquidity are the key arguments to be considered aginst a relaxation in policy rates