Sri Lanka likely to resume rate cuts Thursday to spur growth- Reuters poll

COLOMBO : Sri Lanka’s central bank is expected to resume interest rate cuts on Thursday as it attempts to bolster a recovery from its worst economic crisis in decades, capitalising on low inflation to complete the first review of a $2.9 billion IMF bailout package.

The median estimate in a Reuters poll of 17 economists and analysts is for a 100-basis-point (bps) cut in both the Standing Deposit Facility Rate and the Standing Lending Facility rate, taking them to 10 per cent and 11 per cent, respectively.

“We are sort of pushing towards a rate cut. Any more delays might be too late since we only have one more policy rate decision this year,” said Dimantha Mathew, head of research at First Capital.

“Definitely over the next six months we expect rates to be cut by 200 bps points: This time 100 bps with the next 100 bps coming in the next quarter.”

The Central Bank of Sri Lanka (CBSL) has already reduced rates by 450 bps in two moves over June and July after raising them by a record 1,050 bps from March 2022 to counter the island’s worst financial crisis in over seven decades.

Rates were kept unchanged in a surprise move in August, as CBSL preferred to wait and let the impact of its recent rate filter through the economy.

The economy is expected to shrink 2 per cent this year according to the CBSL’s projections, after contracting 7.8 per cent in 2022.

The World Bank raised its economic forecasts on Tuesday but they remain far more bearish, calling for a 3.8 per cent contraction in 2023.

But the global lender expects gross domestic product (GDP) will grow 1.7 per cent next year, up from an earlier forecast of 1 per cent.

Since finalising a four-year programme with the International Monetary Fund (IMF) in March Sri Lanka has stabilised its economy, reducing inflation from 69 per cent to 1.3 per cent in a year, boosting reserves and strengthening its currency by 12 per cent.

But the IMF did not reach a staff-level agreement with Sri Lanka in its first review last month, due to a potential shortfall in government revenue generation which could delay the release of the second tranche of funds to the island nation.

The policy decision will be at 7:30 a.m. (0200 GMT) on Thursday.

For individual contributions, please see table below:

Organisation SDFR SLFR

Acuity 10.50 per cent 11.50 per cent

Advocata Institute 11 per cent 12 per cent

CAL Group 10 per cent 11 per cent

HSBC 11 per cent 12 per cent

First Capital 10 per cent 11 per cent

Asha Securites 11 per cent 12 per cent

Capital Economics 10.50 per cent 11.50 per cent

Citigroup 10.50 per cent –

University of Colombo 10 per cent 11 per cent

S C Securities 10 per cent 11 per cent

Frontier Research 10 per cent 11 per cent

NDB Securities 10 per cent 11 per cent

Asia Securities 9 per cent 10 per cent

JB Securities 10 per cent 11 per cent

Softlogic Stockbrokers 10 per cent 11 per cent

Lanka Securities 11 per cent 12 per cent

Almas Group 11 per cent 12 per cent

Median 10 per cent 11 per cent