CBSL seen holding fire on rates ahead of 2026 Budget, shaky external sector

FIRST Capital Research (FCR) said Sri Lanka's fragile external balances, with reserves rising only slightly to $ 6.2 billion in August from $ 6.1 billion in July and with projected outflows of $ 513 million in August and $ 611 million over the next three months, are likely to keep the Central Bank of Sri Lanka (CBSL) cautious at its Policy Review on Wednesday (24), ahead of the 2026 Budget in November.

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FCR placed a 50% probability on rates being left unchanged, while assigning a 40% chance of a 25 basis point (bps) cut and a 10% chance of a 50 bps cut. It gave an 80% probability to the Statutory Reserve Ratio (SRR) remaining unchanged, with a 20% chance of a 100 bps hike.

“Reserves are expected to strengthen gradually through US dollar purchases, supported by higher tourism earnings during the peak season and an anticipated rise in worker remittances towards year-end,” FCR said in its September 2025 Pre-Policy Analysis ‘Monetary Patience Ahead of Fiscal Clarity.’

It said the expected International Monetary Fund (IMF)Extended Fund Facility (EFF) sixth tranche disbursement in December will also add support. Moreover, the pent-up demand from vehicle imports is also expected to ease in the coming months, positively impacting the Balance of Payments (BOP) position.