Sri Lanka’s central bank is expected to keep key monetary policy rates steady on Tuesday, a Reuters poll showed, but analysts predict at least a quarter percentage point cut in May or June after the country’s treasury secretary signaled an easing bias for rates.
Eight out of 14 analysts polled by Reuters expect the central bank’s repurchase and reverse repurchase rates to be left unchanged at 7.50 percent and 9.50 percent, respectively, while five predicted a 25 basis point (bps) cut in both.
One analyst expected a 50 basis point cut in both rates.
All analysts surveyed predicted the bank would keep commercial banks’ statutory reserve ratio (SRR) steady at 8 percent. “Concern on inflation still remains. Inflation has just fallen only one month and we need to see how it moves after the increase in electricity tariff,” said Samantha Amerasinghe, an economist at Colombo-based Standard Chartered Bank.
“So it is pre-mature for a rate cut now and I expect the central bank to be cautious.”
Sri Lanka’s year-on-year inflation rate in March eased to 7.5 percent from a near-record high of 9.8 percent a month ago due to the improved supply of vegetables.
The central bank expects inflation to ease further in April due to a higher base effect.
“We will see a slight decline in the level of inflation. It will be between 7.0-7.5 percent,” Swarna Gunaratne, the central bank’s chief economist, told Reuters on Friday.