First Capital claims 60% probability of CBSL rate cut

Monday, 21 July 2025 04:50 - - {{hitsCtrl.values.hits}}

First Capital Research has speculated that there is a 60% probability of a policy rate cut by the Monetary Board during its review tomorrow (22) to to stimulate growth, among other factors.

“As per our view, at the upcoming policy meeting, there is a 60% probability for the Central Bank of Sri Lanka (CBSL) to reduce rates, with a 50% probability for rates to be reduced by 25bps and a 10% probability assigned for a rate reduction of 50bps, offering further stimulus to accelerate the economy,” First Capital Research said in its pre-policy analysis.

“However, we believe there is a 40% probability for the CBSL to maintain the policy rates, in order to allow further time to gain clarity on domestic and global shifts,” it added.

It also said there is an 80% probability to keep the Statutory Reserve Ratio (SRR) unchanged, considering the improved liquidity levels in the system, and FCL Research considers a 20% probability for an SRR hike of 100bps.

Factors supporting a rate cut, First Capital Research listed as: To support the potential sluggishness of the economy, ore room for credit expansion amidst limited State credit; lower supply side pressure led with relatively lower maturities in 2H2025, and rising inflation, but slower than expected.

Arguments against a relaxation in Monetary Policy are: volatility in reserves remains a concern and buildup appears sluggish; global shifts may prompt authorities to ‘wait-and-see,’ and a premature rate cut may impair private credit growth momentum.

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