CBSL expected to hold rates as credit surge, external pressures limit policy space: FCR

FIRST Capital Research expects the Central Bank to keep policy rates unchanged at tomorrow's monetary policy review, saying current macro conditions do not justify easing. It assigned a 60% probability to the policy stance being maintained, alongside a 40% likelihood of a rate reduction.

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FCR sees a 30% chance of a 25-basis-point cut and a 10% chance of a deeper 50-basis-point reduction. It also estimates an 80% probability of the Statutory Reserve Ratio remaining unchanged, with a 20% chance of a 100-basis-point increase in response to improving liquidity.

FCR argues that a rate cut would be difficult to justify amid accelerating private-sector credit, which jumped by Rs. 236.3 billion in September alone, pushing year-to-date credit expansion above Rs. 9.5 trillion.

Lending to the private sector rose 23.6% year-on-year in September, while survey indicators point to continued momentum into the fourth quarter.

The firm says a policy cut risks fuel-ling further import demand, particularly for vehicles, and adding to emerging current-account pressures after Sri Lanka recorded a deficit in September following eight months of surpluses.