Sri Lanka’s Cenbank to hold rates as global commodity prices falter
COLOMBO: Sri Lanka’s central bank is expected to keep interest rates steady on Thursday in hopes that a recent downward trend in global commodity prices continues and helps sustain record domestic inflation without further monetary tightening.
Eleven of 15 economists and analysts polled by Reuters said they expect rates to remain unchanged as the Central Bank of Sri Lanka (CBSL) waits for the effects of its previous hikes to trickle down to the economy and the inflation stabilizes.
“There is no need for change. On many fronts, things are improving,” said Udeeshan Jonas, chief strategist at CAL Group. “Inflation is changing course, economic activity is improving and pressure on currencies is easing.”
Inflation in Sri Lanka hit 60.8% year-on-year in July and food prices rose 90.9%, according to government data.
Among other problems, a sharp rise in crude prices accelerated the country’s worst financial crisis in seven decades as the island of 22 million people was caught in a severe shortage of dollars that left it unable to pay for imports. essentials, including fuel, food and medicine.
The CBSL has raised rates by a record 950 basis points so far this year to tackle high inflation that was adding to the country’s economic worries.
The standing deposit facility rate and the standing loan facility rate are 14.50% and 15.50% respectively.
Economists said the CBSL will also wait to get an idea of the government’s fiscal targets when it presents an interim budget to parliament in the first week of September, following the departure of former president Gotabaya Rajapaksa last month in the middle of mass demonstrations.
Sri Lanka is in talks with the International Monetary Fund (IMF) for a possible $3 billion bailout, but must present a plan to put its heavy debt on a sustainable path to secure a four-year programme.
“The main concerns now will be the debt restructuring needed for an IMF program and the targets that will be set in the interim budget,” said Jonas of the CAL group.
For individual poll forecasts, please see the table below:
Organization SLDFR on August 18 SLFR on August 18
CT CLSA No change No change
Acuity No change No change
Advocata Institute No change No change
Rehana Thowfeek No change No change
CAL group No change No change
Asian securities No change No change
First capital No change No change
Asha Securities No change No change
Capital savings 17% 18%
NDB Investment Bank No change No change
University of Colombo No change No change
JB Securities 15.50% 16.50%
ICRA Lanka No change No change
Standard Chartered 16.50% 17.50%
Citigroup 17.50% 18.50%
(Reporting by Uditha Jayasinghe; Additional reporting by Vivek Mishra in Bangalore; Editing by Swati Bhat and David Holmes)