Central Bank likely to hold rates at final monetary policy review

The Central Bank is expected to maintain its key policy rates at today’s final monetary policy review of 2025, as a strong private credit growth and a fragile external position outweigh the arguments for further easing.

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A pre-policy note published yesterday by First Capital Research (FCR) indicated a 60 percent probability of rates staying unchanged, while assigning a 40 percent probability for a rate cut, 25 basis points most likely, with a smaller chance of a 50-basis-point reduction.

The Statutory Reserve Ratio is also expected to remain steady, although analysts see a small possibility of a 100-basis-point hike amid the improving liquidity.

Private sector lending has surged, following the February 2025 relaxation of the vehicle import ban, with September alone recording a record Rs.236.3 billion in new loans. The cumulative credit expansion from January to September exceeded Rs.9.5 trillion, while the Central Bank’s Willingness to Lend Index continued to improve into the third quarter.

This momentum, combined with the rising domestic demand and the ongoing recovery in construction, reduces the case for a rate cut, which could overheat credit growth and widen the current account deficit.