July 22 2024: Sri Lanka’s central bank is anticipated to maintain its current interest rates for a second consecutive meeting on Wednesday, aiming to sustain monetary stability amid a prolonged financial crisis and ongoing political tensions.
According to a Reuters poll, nine out of 14 economists and analysts expect the Central Bank of Sri Lanka (CBSL) to keep the Standing Deposit Facility Rate (SDFR) at 8.50% and the Standing Lending Facility Rate (SLFR) at 9.50%.
The CBSL reduced rates by 50 basis points in March as part of an easing cycle that has seen rates decline by 700 basis points since June, partially reversing the 1,050 basis points in increases since April 2022.
Sri Lanka’s key inflation rate fell to 1.7% in June and is likely to stay below the CBSL’s target of 5% for the year, according to analysts.
However, persistent political concerns regarding the upcoming presidential election, expected to be announced later this month and held in late September or early October, are affecting the economy.
“There is no real requirement to push down rates; in fact, given the election uncertainty, lowering rates is a risk,” said Dimantha Mathew, head of research at First Capital Holdings. “Rates are at the appropriate level now.”
Sri Lanka recently reduced power tariffs by 22.5% and fuel prices, aligning with a $2.9 billion International Monetary Fund (IMF) bailout. This aid has helped the country rebuild foreign exchange reserves, temper inflation, and strengthen its currency.
A gradual recovery in consumption and private sector credit growth, coupled with lower power and fuel costs, is expected to support growth, eliminating the need for an interest rate reduction, analysts added.
The CBSL projects Sri Lanka’s economy will grow by 3% this year, following a 7.3% contraction two years ago due to a severe dollar shortage.
Detailed Poll Responses:
Organisation SDFR (%) SLFR (%)
Acuity 8.25 9.25
Advocata Institute 8.5 9.5
CAL Group 8 9
Citigroup 8.25 9.25
First Capital 8.5 9.5
Asha Securities 8.5 9.5
HSBC 8.5 9.5
University of Colombo 8 9
Frontier Research 8.5 9.5
Asia Securities 8.5 9.5
JB Securities 8.25 9.25
Softlogic Stockbrokers 8.5 9.5
NDB Securities 8.5 9.5
Capital Economics 8.5 9.5
Median 8.5 9.5
